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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 March 31, 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 April 30, 2009, 48,631,829 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 MARCH 31, 2009

TABLE OF CONTENTS



|              |  |                                                                                                        |  |     
|------------- |  | ------------------------------------------------------------------------------------------------------ |  | ----
|              |  |                                                                                                        |  | Page
|              |  | PART I                                                                                                 |  |     
|Item 1.       |  | Financial Statements (unaudited)                                                                       |  | 3   
|              |  | Condensed Consolidated Balance Sheets  March 31, 2009 and December 31, 2008                           |  | 3   
|              |  | Condensed Consolidated Statements of Operations  Three Months Ended March 31, 2009 and March 30, 2008 |  | 4   
|              |  | Condensed Consolidated Statements of Cash Flows  Three Months Ended March 31, 2009 and March 30, 2008 |  | 5   
|              |  | Notes to Condensed Consolidated Financial Statements                                                   |  | 6   
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 21  
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 28  
|Item 4.       |  | Controls and Procedures                                                                                |  | 28  
|              |  |                                                                                                       
|              |  | PART II                                                                                                |  |     
|Item 1.       |  | Legal Proceedings                                                                                      |  | 28  
|Item 1A.      |  | Risk Factors                                                                                           |  | 33  
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                            |  | 41  
|Item 3.       |  | Defaults Upon Senior Securities                                                                        |  | 41  
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                    |  | 42  
|Item 5.       |  | Other Information                                                                                      |  | 42  
|Item 6.       |  | Exhibits                                                                                               |  | 43  
|              | 
|Signatures    |  | 44                                                                                                    
|              | 
|Exhibit Index |  | 45                                                                                                    



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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)



|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                 |  | March 31,2009 |         |   | December 31,2008 |  
|ASSETS                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                        |  | $             | 153,761 |   |                  | $ | 87,890  |  
|Short-term investments                                                                                                                                           |  |               | 207,503 |   |                  |   | 188,610 |  
|Accounts receivable, net of allowance for doubtful accounts $60 and $60                                                                                          |  |               | 10,814  |   |                  |   | 14,724  |  
|Inventories                                                                                                                                                      |  |               | 1,487   |   |                  |   | 1,534   |  
|Short-term deferred tax assets                                                                                                                                   |  |               | 2,409   |   |                  |   | 2,409   |  
|Other current assets                                                                                                                                             |  |               | 5,214   |   |                  |   | 8,220   |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                             |  |               | 381,188 |   |                  |   | 303,387 |  
|                                                                                                                                                                 |  |              
|Property and equipment, net                                                                                                                                      |  |               | 40,378  |   |                  |   | 36,984  |  
|Intangible assets, net                                                                                                                                           |  |               | 68,690  |   |                  |   | 71,312  |  
|Goodwill                                                                                                                                                         |  |               | 40,444  |   |                  |   | 40,444  |  
|Long-term deferred tax assets                                                                                                                                    |  |               | 19,399  |   |                  |   | 19,756  |  
|Long-term investments                                                                                                                                            |  |               | 22,543  |   |                  |   | 22,134  |  
|Other assets                                                                                                                                                     |  |               | 3,599   |   |                  |   | 7,572   |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                     |  | $             | 576,241 |   |                  | $ | 501,589 |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|                                                                                                                                                                 |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                             |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                 |  | $             | 2,669   |   |                  | $ | 2,924   |  
|Accrued legal fees                                                                                                                                               |  |               | 15,362  |   |                  |   | 13,945  |  
|Accrued liabilities                                                                                                                                              |  |               | 13,658  |   |                  |   | 17,747  |  
|Deferred revenue                                                                                                                                                 |  |               | 9,264   |   |                  |   | 6,085   |  
|Income tax payable                                                                                                                                               |  |               | 26,698  |   |                  |   | 1,385   |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                        |  |               | 67,651  |   |                  |   | 42,086  |  
|Long-term deferred tax liabilities                                                                                                                               |  |               | 8,991   |   |                  |   | 8,991   |  
|Other long-term liabilities                                                                                                                                      |  |               | 3,608   |   |                  |   | 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; 49,276 and 49,132 shares issued, respectively, and 48,631 and 48,487 shares
outstanding, respectively |  |               | 49      |   |                  |   | 49      |  
|Additional paid-in capital                                                                                                                                       |  |               | 356,690 |   |                  |   | 347,568 |  
|Treasury stock at cost: 645 and 645 shares of common stock, respectively                                                                                         |  |               | (10,505 | ) |                  |   | (10,505 | )
|Accumulated other comprehensive loss                                                                                                                             |  |               | (281    | ) |                  |   | (777    | )
|Retained earnings                                                                                                                                                |  |               | 150,038 |   |                  |   | 110,569 |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                       |  |               | 495,991 |   |                  |   | 446,904 |  
|                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|                                                                                                                                                                 |  |              
|Total liabilities and stockholders equity                                                                                                                       |  | $             | 576,241 |   |                  | $ | 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
|                                                                         |  | March 31,2009      |         | March 30,2008
|Revenues:                                                                |  |                    |         |               |   |       
|Royalty and license fees                                                 |  | $                  | 111,857 |               | $ | 50,240
|Product and service revenues                                             |  |                    | 2,719   |               |   | 9,111 
|                                                                         |  |                    |         |               |   |       
|Total revenues                                                           |  |                    | 114,576 |               |   | 59,351
|                                                                         |  |                    |         |               |   |       
|                                                                         |  |                   
|Operating expenses:                                                      |  |                    |         |               |   |       
|Cost of revenues                                                         |  |                    | 4,098   |               |   | 4,332 
|Research, development and other related costs                            |  |                    | 16,630  |               |   | 14,153
|Selling, general and administrative                                      |  |                    | 17,496  |               |   | 15,324
|Litigation expense                                                       |  |                    | 8,625   |               |   | 20,193
|                                                                         |  |                    |         |               |   |       
|Total operating expenses                                                 |  |                    | 46,849  |               |   | 54,002
|                                                                         |  |                    |         |               |   |       
|                                                                         |  |                   
|Operating income                                                         |  |                    | 67,727  |               |   | 5,349 
|Other income and expense, net                                            |  |                    | 2,762   |               |   | 2,834 
|                                                                         |  |                    |         |               |   |       
|Income before taxes                                                      |  |                    | 70,489  |               |   | 8,183 
|Provision for income taxes                                               |  |                    | 31,020  |               |   | 5,957 
|                                                                         |  |                    |         |               |   |       
|Net income                                                               |  | $                  | 39,469  |               | $ | 2,226 
|                                                                         |  |                    |         |               |   |       
|                                                                         |  |                   
|Basic and diluted net income per share:                                  |  |                    |         |               |   |       
|Net income per share-basic                                               |  | $                  | 0.82    |               | $ | 0.05  
|                                                                         |  |                    |         |               |   |       
|Net income per share-diluted                                             |  | $                  | 0.82    |               | $ | 0.05  
|                                                                         |  |                    |         |               |   |       
|Weighted average number of shares used in per share calculations-basic   |  |                    | 48,147  |               |   | 48,157
|                                                                         |  |                    |         |               |   |       
|Weighted average number of shares used in per share calculations-diluted |  |                    | 48,318  |               |   | 48,693
|                                                                         |  |                    |         |               |   |       

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)



|                                                                                              |  |                    |         |   |               |   |          |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | -------- | -
|                                                                                              |  | Three Months Ended |        
|                                                                                              |  | March 31,2009      |         |   | March 30,2008 |  
|Cash flows from operating activities:                                                         |  |                    |         |   |               |   |          |  
|Net income                                                                                    |  | $                  | 39,469  |   |               | $ | 2,226    |  
|Adjustments to reconcile net income to net cash provided by operating activities:             |  |                    |         |   |               |   |          |  
|Depreciation and amortization of property and equipment                                       |  |                    | 2,088   |   |               |   | 1,922    |  
|Amortization of intangible assets                                                             |  |                    | 2,897   |   |               |   | 2,347    |  
|In-process research and development                                                           |  |                    |        |   |               |   | 2,500    |  
|Impairment on long-term investments and assets, net of gain                                   |  |                    | 1,617   |   |               |   |         |  
|Loss on property and equipment                                                                |  |                    | 509     |   |               |   | 11       |  
|Stock-based compensation                                                                      |  |                    | 6,316   |   |               |   | 4,493    |  
|Tax benefits from employee stock option plan                                                  |  |                    | 1,754   |   |               |   |         |  
|Excess tax benefit from stock-based compensation                                              |  |                    | (1,532  | ) |               |   |         |  
|Changes in operating assets and liabilities, net of acquisitions:                             |  |                    |         |   |               |   |          |  
|Accounts receivable, net                                                                      |  |                    | 3,910   |   |               |   | (8,129   | )
|Inventories                                                                                   |  |                    | 47      |   |               |   | 20       |  
|Deferred income tax, net                                                                      |  |                    | 357     |   |               |   |         |  
|Other assets                                                                                  |  |                    | 3,045   |   |               |   | (263     | )
|Accounts payable                                                                              |  |                    | (255    | ) |               |   | 314      |  
|Accrued legal fees                                                                            |  |                    | 1,417   |   |               |   | 2,555    |  
|Accrued liabilities                                                                           |  |                    | (4,367  | ) |               |   | (3,132   | )
|Deferred revenue                                                                              |  |                    | 3,179   |   |               |   | 33       |  
|Income tax payable                                                                            |  |                    | 25,313  |   |               |   | 4,635    |  
|                                                                                              |  |                    |         |   |               |   |          |  
|Net cash provided by operating activities                                                     |  |                    | 85,764  |   |               |   | 9,532    |  
|                                                                                              |  |                    |         |   |               |   |          |  
|Cash flows from investing activities:                                                         |  |                    |         |   |               |   |          |  
|Purchases of property and equipment                                                           |  |                    | (5,721  | ) |               |   | (1,720   | )
|Proceeds from sale of property and equipment                                                  |  |                    | 8       |   |               |   |         |  
|Purchases of short-term and long-term available-for-sale investments                          |  |                    | (52,787 | ) |               |   | (112,493 | )
|Proceeds from maturities and sales of short-term and long-term available-for-sale investments |  |                    | 35,386  |   |               |   | 63,545   |  
|Purchases of intangible assets                                                                |  |                    | (275    | ) |               |   |         |  
|Change in minority equity investments                                                         |  |                    | 912     |   |               |   |         |  
|Acquisitions, net of cash acquired                                                            |  |                    |        |   |               |   | (32,064  | )
|                                                                                              |  |                    |         |   |               |   |          |  
|Net cash used in investing activities                                                         |  |                    | (22,477 | ) |               |   | (82,732  | )
|                                                                                              |  |                    |         |   |               |   |          |  
|Cash flows from financing activities:                                                         |  |                    |         |   |               |   |          |  
|Excess tax benefit from stock-based compensation                                              |  |                    | 1,532   |   |               |   |         |  
|Proceeds from exercise of stock options                                                       |  |                    | 1       |   |               |   | 1,519    |  
|Proceeds from employee stock purchase program                                                 |  |                    | 1,051   |   |               |   | 1,311    |  
|Repurchase of common stock                                                                    |  |                    |        |   |               |   | (9,961   | )
|                                                                                              |  |                    |         |   |               |   |          |  
|Net cash provided by (used in) financing activities                                           |  |                    | 2,584   |   |               |   | (7,131   | )
|                                                                                              |  |                    |         |   |               |   |          |  
|Net increase (decrease) in cash and cash equivalents                                          |  |                    | 65,871  |   |               |   | (80,331  | )
|Cash and cash equivalents at beginning of period                                              |  |                    | 87,890  |   |               |   | 207,158  |  
|                                                                                              |  |                    |         |   |               |   |          |  
|Cash and cash equivalents at end of period                                                    |  | $                  | 153,761 |   |               | $ | 126,827  |  
|                                                                                              |  |                    |         |   |               |   |          |  

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 develops and delivers miniaturization solutions that
transform wireless, computing, and consumer electronic products. 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 March 31, 2009 and
March 30, 2008, and for the three 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 results of operations for the three months ended March 31, 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, March 31, 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, March 30, 2008.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Companys significant
accounting policies during the three months ended March 31, 2009, as compared to the significant accounting policies described in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Financial Instruments

Effective January 1, 2008, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 157 (SFAS No. 157), Fair Value Measurements, which defines fair value, establishes a consistent framework for measuring fair value
and expands disclosure requirements about fair value measurements. SFAS No. 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
Company carries marketable securities at fair value and discloses fair value measurements in accordance with SFAS No. 157. See Note 3Recent Accounting Pronouncements for a full description of recent accounting
pronouncements related to financial instruments and their respective expected dates of adoption.

Investments consist primarily of corporate and tax-exempt
commercial paper, corporate bonds and notes, government agency notes, 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, 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, realized gains or losses and impairment charges on securities are included in other income and expense, net.

The Company evaluates the investments periodically for possible other-than-temporary impairment and reviews 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 accounts for its revenues under the provisions of Staff Accounting Bulletin No. 104, Revenue Recognition in
Financial Statements, Financial Accounting Standard Boards (FASB) Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, AICPA Statement of Position 97-2, Software
Revenue Recognition, and any applicable amendments or modifications, and Emerging Issues Task Force Issue (EITF) No. 01-09, Accounting for Consideration Given by a Vendor to a Customer. 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 license 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. 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 services, 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 of semiconductors 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 takes 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 compliance audits of licensees to independently verify the accuracy of the information contained
in the licensees royalty reports.



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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 dependant 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 collectability is probable and/or reasonably assured based on customer credit worthiness and past history of collection. When collectability is not considered probable, revenue is deferred until collection.

In addition, the Company may enter into certain sales transactions that involve multiple element arrangements such as software licenses, design and technical services
with no rights of return. If the Company can objectively determine the fair value of each 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.

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 other specialized 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 freight-on-board shipping point. Service revenue principally consists of engineering, assembly and infrastructure services, provided primarily to government agencies, which the Company believes accelerate the
incorporation of the Companys intellectual property into customers products and aid in the Companys understanding of the electronic industry future packaging requirements. 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, including estimated earned fees, under cost reimbursement-type contracts are recognized as costs are incurred, assuming that the fee is fixed or determinable
and collection is reasonably assured. Revenues from services related to training are recognized when services are performed.

Claims made for amounts in
excess of the agreed contract price are recognized only if it is probable that the claim will result in additional revenue and the amount of additional revenue can be reliably estimated.

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 for a period not to exceed one year. Inventory in excess of
estimated saleable amounts is not valued.

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, and deductions and in the
calculation of certain tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to the Companys tax provision in a subsequent period.

Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the
currently enacted tax rates and laws. The provision for income taxes comprises the Companys current tax liability and change in deferred income tax 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 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 probable.

In addition, the calculation of tax liabilities
involves dealing with uncertainties in the application of complex tax laws and regulations. Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition and
disclosure.

See Note 10 Income Taxes for additional details.



7



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NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures
about fair value measurements. On February 12, 2008, the FASB issued FASB Financial Staff Position (FSP) SFAS No. 157-2 which partially defers the effective date of SFAS No. 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a
business combination. The Company adopted SFAS No. 157 for fiscal year 2008 and FSP FAS No. 157-2 on January 1, 2009. See Note 13 for information and related disclosures regarding the Companys fair value measurements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141R), Business Combinations. The objective of
SFAS No. 141 is to improve the relevance, representational faithfulness, and comparability of the information that a company provides in its financial reports about a business combination and its effects. Under SFAS No. 141R, a company is
required to recognize the assets acquired, liabilities assumed, contractual contingencies, contingent consideration measured at their fair value at the acquisition date. It further required 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 immediately charged to expense, and that acquisition-related costs are to be recognized separately from the acquisition and expensed as
incurred. Among other changes, this statement also required 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. SFAS No. 141R 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 SFAS No. 141R, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS No. 141(R)-1 (FSP SFAS No. 141R-1), Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies. The FSP 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 will be 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 FSP SFAS No. 141R-1, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued Statement No. 160 (SFAS No. 160), Noncontrolling Interests in Consolidated Financial Statementsan
amendment of ARB No. 51. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a company provides in its consolidated financial statements. SFAS No. 160
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. SFAS
No. 160 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 SFAS No. 160, which did not have a significant impact on its
consolidated financial position, results of operations or cash flows.

In November 2008, the FASB ratified EITF Issue No. 08-07 (EITF
08-07), Accounting for Defensive Intangible Assets. EITF 08-07 provides guidance for accounting for defensive intangible assets subsequent to their acquisition in accordance with SFAS No. 141R and SFAS No. 157 including
the estimated useful life that should be assigned to such assets. EITF 08-07 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 EITF 08-07 did not have a significant impact on the Companys consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FSP FAS No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in
FASB Statement No. 157, Fair Value Measurements. FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, addresses consistency in financial reporting by increasing the frequency of
fair value disclosures. FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities. The FSPs are 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. The Company is
currently evaluating the impact that these FSPs may have 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):



|                |  |               |       |                  |   |      
|--------------- |  | ------------- | ----- | ---------------- | - | -----
|                |  | March 31,2009 |       | December 31,2008
|Raw materials   |  | $             | 368   |                  | $ | 369  
|Work in process |  |               | 458   |                  |   | 677  
|Finished goods  |  |               | 661   |                  |   | 488  
|                |  |               |       |                  |   |      
|                |  | $             | 1,487 |                  | $ | 1,534
|                |  |               |       |                  |   |      



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



|                                                |  |               |         |   |                  |   |         |  
|----------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | March 31,2009 |         |   | December 31,2008 |  
|Furniture and equipment                         |  | $             | 43,793  |   |                  | $ | 39,160  |  
|Land and buildings                              |  |               | 15,628  |   |                  |   | 15,628  |  
|Leasehold improvements                          |  |               | 3,811   |   |                  |   | 4,142   |  
|                                                |  |               |         |   |                  |   |         |  
|                                                |  |               | 63,232  |   |                  |   | 58,930  |  
|Less: Accumulated depreciation and amortization |  |               | (22,854 | ) |                  |   | (21,946 | )
|                                                |  |               |         |   |                  |   |         |  
|                                                |  | $             | 40,378  |   |                  | $ | 36,984  |  
|                                                |  |               |         |   |                  |   |         |  

Accrued liabilities consisted of the following (in thousands):



|                                   |  |               |        |                  |   |       
|---------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                   |  | March 31,2009 |        | December 31,2008
|Employee compensation and benefits |  | $             | 7,956  |                  | $ | 10,435
|Other                              |  |               | 5,702  |                  |   | 7,312 
|                                   |  |               |        |                  |   |       
|                                   |  | $             | 13,658 |                  | $ | 17,747
|                                   |  |               |        |                  |   |       

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



|                                                               |  |               |     |                  |   |    
|-------------------------------------------------------------- |  | ------------- | --- | ---------------- | - | ---
|                                                               |  | March 31,2009 |     | December 31,2008
|Unrealized losses on available-for-sale securities, net of tax |  | $             | 281 |                  | $ | 777
|                                                               |  |               |     |                  |   |    
|                                                               |  |              
|Accumulated other comprehensive loss                           |  | $             | 281 |                  | $ | 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. The acquisition of FotoNation enables the Company to expand its imaging and optical technologies, complementing its
acquisitions of Shellcase Ltd. in 2005, Digital Optics in 2006 and Eyesquad in 2007. This contributed to a purchase price in excess of the fair value of the underlying net tangible liabilities and intangible assets acquired from FotoNation and, as a
result, the Company has recorded goodwill in connection with this transaction.

As a result of the acquisition, FotoNation became a wholly owned subsidiary
of the Company in a transaction accounted for using the purchase method of accounting, with the results of the acquired entity included in the Imaging & Optics segment as of the acquisition date. The net purchase consideration of $33.9
million included a cash payment of $34.0 million for all outstanding shares of capital stock and vested stock options, and transaction costs of $1.0 million, net of a repayment from the shareholders due to non-achievement of certain milestones for
$1.1 million. The merger agreement also provides for up to $10.0 million of additional cash consideration, contingent upon achievement of certain other milestones evaluated at the end of fourteen months from the date of acquisition in February 2008.
The purchase price includes $2.9 million of cash acquired. Of the purchase consideration, $8.9 million is held in escrow as of March 31, 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. In allocating the purchase price based on fair values, the Company allocated $1.2 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 $4.7 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,
and the amount assigned to in-process research and development, if any, is expensed immediately. 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. The carrying value of goodwill as of March 31, 2009 remains
unchanged at $40.4 million allocated to the Imaging and Optics segment. See Note 12Segment and Geographic Information for additional detail.



9



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



|                           |  |                    |  |                |        |                         |   |         |     |  |             |        |                         |   |        |     |   |         |   |  |   |       
|-------------------------- |  | ------------------ |  | -------------- | ------ | ----------------------- | - | ------- | --- |  | ----------- | ------ | ----------------------- | - | ------ | --- | - | ------- | - |  | - | ------
|                           |  |                    |  | March 31, 2009 |        | December 31, 2008      
|                           |  | AverageLife(Years) |  | GrossAssets    |        | AccumulatedAmortization |   |         | Net |  | GrossAssets |        | AccumulatedAmortization |   |        | Net
|Acquired patents           |  | 7-15               |  | $              | 25,011 |                         | $ | (5,085  | )   |  | $           | 19,926 |                         | $ | 24,736 |     | $ | (4,422  | ) |  | $ | 20,314
|Existing technology        |  | 5-10               |  |                | 51,161 |                         |   | (13,334 | )   |  |             | 37,827 |                         |   | 51,161 |     |   | (11,683 | ) |  |   | 39,478
|Trade name                 |  | 4-10               |  |                | 3,620  |                         |   | (983    | )   |  |             | 2,637  |                         |   | 3,620  |     |   | (881    | ) |  |   | 2,739 
|Customer contracts         |  | 4-9                |  |                | 10,500 |                         |   | (2,342  | )   |  |             | 8,158  |                         |   | 10,500 |     |   | (1,984  | ) |  |   | 8,516 
|Non-competition agreements |  | 2                  |  |                | 1,400  |                         |   | (1,400  | )   |  |             | 0      |                         |   | 1,400  |     |   | (1,296  | ) |  |   | 104   
|Assembled workforce        |  | 4                  |  |                | 300    |                         |   | (158    | )   |  |             | 142    |                         |   | 300    |     |   | (139    | ) |  |   | 161   
|                           |  |                    |  |                |        |                         |   |         |     |  |             |        |                         |   |        |     |   |         |   |  |   |       
|                           |  |                    |  | $              | 91,992 |                         | $ | (23,302 | )   |  | $           | 68,690 |                         | $ | 91,717 |     | $ | (20,405 | ) |  | $ | 71,312
|                           |  |                    |  |                |        |                         |   |         |     |  |             |        |                         |   |        |     |   |         |   |  |   |       

Amortization expense for the three months ended March 31, 2009 and March 30, 2008 amounted to $2.9
million and $2.3 million, respectively.

As of March 31, 2009, the estimated future amortization expense of purchased identified intangible assets is
as follows (in thousands):



|                          |  |   |       
|------------------------- |  | - | ------
|2009 (remaining 9 months) |  | $ | 8,387 
|2010                      |  |   | 10,985
|2011                      |  |   | 10,636
|2012                      |  |   | 10,158
|2013                      |  |   | 9,503 
|Thereafter                |  |   | 19,021
|                          |  |   |       
|                          |  | $ | 68,690
|                          |  |   |       

NOTE 7  NET INCOME PER SHARE

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



|                                                   |  |                    |        |   |               |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                   |  | Three Months Ended |       
|                                                   |  | March 31,2009      |        |   | March 30,2008 |  
|Numerator:                                         |  |                    |        |   |               |   |        |  
|Net income                                         |  | $                  | 39,469 |   |               | $ | 2,226  |  
|Denominator:                                       |  |                    |        |   |               |   |        |  
|Weighted average common shares outstanding         |  |                    | 48,581 |   |               |   | 48,559 |  
|Less: Unvested common shares subject to repurchase |  |                    | (434   | ) |               |   | (402   | )
|                                                   |  |                    |        |   |               |   |        |  
|Total shares-basic                                 |  |                    | 48,147 |   |               |   | 48,157 |  
|Effect of dilutive securities                      |  |                    |        |   |               |   |        |  
|Stock awards and warrants                          |  |                    | 143    |   |               |   | 468    |  
|Restricted stock                                   |  |                    | 28     |   |               |   | 68     |  
|                                                   |  |                    |        |   |               |   |        |  
|Total shares-diluted                               |  | $                  | 48,318 |   |               | $ | 48,693 |  
|                                                   |  |                    |        |   |               |   |        |  
|Net income per common share-basic                  |  | $                  | 0.82   |   |               | $ | 0.05   |  
|Net income per common share-diluted                |  | $                  | 0.82   |   |               | $ | 0.05   |  

Basic net income per share is computed using the weighted average number of common shares outstanding during the
period, excluding any unvested restricted shares that are subject to repurchase. Diluted net income per share is computed using the treasury stock method to calculate the weighted average number of common shares and, if dilutive, potential common
shares outstanding during the period. Potential dilutive common shares include unvested restricted 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 months ended March 31, 2009 and March 30, 2008, approximately 6.5 million and 2.5 million shares to purchase common
stock, respectively, were excluded from the computation of diluted net income per share as they were anti-dilutive.

NOTE 8  STOCKHOLDERS
EQUITY

Stock Repurchase Programs

In August
2007, the 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
March 31, 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 March 31, 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



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##### Table of Contents

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 March 31, 2009, there were no shares reserved for grant under these plans. As of March 31, 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 March 31, 2009, there were 3,195,000 shares reserved for grant under this plan.

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



|                             |  |                    |   |  |                                        |      
|---------------------------- |  | ------------------ | - |  | -------------------------------------- | -----
|                             |  | Shares Outstanding
|                             |  | Numberof Shares    |   |  | WeightedAverageExercisePrice Per Share
|Balance at December 31, 2008 |  | 6,779              |   |  | $                                      | 24.25
|Options granted              |  | 46                 |   |  | $                                      | 12.62
|Options exercised            |  | (1                 | ) |  | $                                      | 0.95 
|Options forfeited / expired  |  | (27                | ) |  | $                                      | 28.15
|                             |  |                    |   |  |                                        |      
|Balance at March 31, 2009    |  | 6,797              |   |  | $                                      | 24.16
|                             |  |                    |   |  |                                        |      

Information with respect to outstanding restricted stock awards and units as of March 31, 2009 was as follows
(in thousands, except per share amounts):



|                                       |  |                  |   |  |                                               |      
|-------------------------------------- |  | ---------------- | - |  | --------------------------------------------- | -----
|                                       |  | Restricted Stock
|                                       |  | Numberof Shares  |   |  | WeightedAverageGrant DateFair Value Per Share
|Unnvested at December 31, 2008         |  | 925              |   |  | $                                             | 29.91
|Awards and units granted               |  | 10               |   |  | $                                             | 12.62
|Awards and units vested                |  | (132             | ) |  | $                                             | 37.92
|Awards and units cancelled / forfeited |  | (13              | ) |  | $                                             | 36.13
|                                       |  |                  |   |  |                                               |      
|Balance at March 31, 2009              |  | 790              |   |  | $                                             | 28.24
|                                       |  |                  |   |  |                                               |      

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.



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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
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 March 31, 2009 and March 30, 2008, there were 719,000 and 703,000 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 months ended March 31, 2009 and March 30, 2008 is as follows (in thousands):



|                                            |  |                    |       |               |   |      
|------------------------------------------- |  | ------------------ | ----- | ------------- | - | -----
|                                            |  | Three Months Ended
|                                            |  | March 31,2009      |       | March 30,2008
|Cost of revenues                            |  | $                  | 111   |               | $ | 105  
|Research, development & other related costs |  |                    | 2,667 |               |   | 1,411
|Selling, general & administrative           |  |                    | 3,538 |               |   | 2,977
|                                            |  |                    |       |               |   |      
|Total stock-based compensation expense      |  | $                  | 6,316 |               | $ | 4,493
|                                            |  |                    |       |               |   |      

The stock-based compensation expense categorized by various equity components for the three months ended
March 31, 2009 and March 30, 2008 is summarized in the table below (in thousands):



|                                       |  |                    |       |               |   |      
|-------------------------------------- |  | ------------------ | ----- | ------------- | - | -----
|                                       |  | Three Months Ended
|                                       |  | March 31,2009      |       | March 30,2008
|Employee stock options                 |  | $                  | 3,444 |               | $ | 2,435
|Restricted stock awards                |  |                    | 2,454 |               |   | 1,654
|Employee stock purchase plan           |  |                    | 418   |               |   | 404  
|                                       |  |                    |       |               |   |      
|Total stock-based compensation expense |  | $                  | 6,316 |               | $ | 4,493
|                                       |  |                    |       |               |   |      

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. Prior to 2008, volatility was calculated based on the blended volatility approach consisting of a combination of the Companys historical volatility and volatility of industry peers for the
period in which the Companys stock was not publically traded.

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 |  
|                         |  | March 31,2009      |   |  | March 30,2008 |  
|Expected life (in years) |  | 3.70               |   |  | 4.00          |  
|Risk-free interest rate  |  | 1.2                | % |  | 2.6           | %
|Dividend yield           |  | 0.0                | % |  | 0.0           | %
|Expected volatility      |  | 73.5               | % |  | 59.9          | %



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NOTE 10  INCOME TAXES

The provision for income taxes for the three months ended March 31, 2009 was $31.0 million and was comprised of domestic income tax and foreign income and withholding tax. The income tax provision for the three months ended
March 30, 2008 was $6.0 million and was comprised of domestic income tax and foreign income and withholding tax. The Companys provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for
jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses. Such jurisdictions tax is based on actual withholding taxes for the quarter. The increase in the income tax provision for the three months
ended March 31, 2009 as compared to the three months ended March 30, 2008 is primarily attributable to the increase in pre-tax income for the period, taxed at the statutory income tax rate, and off-set by non-benefitted tax losses in
foreign jurisdictions.

As of March 31, 2009 and December 31, 2008, unrecognized tax benefits determined in accordance with FASB Interpretation
No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, approximated $4.2 million. The change in the unrecognized tax benefits was immaterial for the period. The total amount of unrecognized tax benefits
that, if recognized, would favorably affect the effective tax rate is $2.5 million at March 31, 2009.

It is the Companys policy to classify
accrued interest and penalties as part of the accrued FIN No. 48 liability in the provision for income taxes. For the three months ended March 31, 2009, interest and penalties related to unrecognized tax benefits were immaterial and are
included in unrecognized tax benefits. The Company does not expect any of its unrecognized tax benefits to expire within the next twelve months.

As of
March 31, 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
carryforwards 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 months ended March 31, 2009 and March 30, 2008 amounted to $0.7 million and $0.3 million, respectively. In addition, the Company has agreements containing non-cancelable, nonrefundable payment terms with third parties to
purchase services.

As of March 31, 2009, future minimum lease payments and non-cancelable purchase obligations are as follows (in thousands):



|                          |  |                      |       |                   |   |        |  |   |       
|------------------------- |  | -------------------- | ----- | ----------------- | - | ------ |  | - | ------
|                          |  | Purchase Obligations |       | Lease Obligations |   | Total 
|2009 (remaining 9 months) |  | $                    | 2,223 |                   | $ | 1,638  |  | $ | 3,861 
|2010                      |  |                      | 56    |                   |   | 1,647  |  |   | 1,703 
|2011                      |  |                      |      |                   |   | 1,620  |  |   | 1,620 
|2012                      |  |                      |      |                   |   | 1,673  |  |   | 1,673 
|2013                      |  |                      |      |                   |   | 1,731  |  |   | 1,731 
|Thereafter                |  |                      |      |                   |   | 2,409  |  |   | 2,409 
|                          |  |                      |       |                   |   |        |  |   |       
|                          |  | $                    | 2,279 |                   | $ | 10,718 |  | $ | 12,997
|                          |  |                      |       |                   |   |        |  |   |       

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 before the International Trade Commission (ITC). On August 5, 2008, the court ordered that this action be further stayed pending completion 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 action, 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.



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The trial in this case has been scheduled to begin on September 28, 2009, and discovery is ongoing. 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 will, among other things, investigate infringement of U.S. Patent Nos. 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 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 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, and the parties have now submitted their initial
responses.

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. At this time, the ITC has not taken any action regarding Spansions Notice.

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.

A
final determination from the Commission is currently scheduled to be issued by May 20, 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. 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. The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings could significantly harm the Companys business and consolidated financial position, results of
operations or cash flows.

In the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same (III),

ITC No. 337-TA-630 (the 630 ITC Action)

On December 7, 2007, the Company filed a complaint with the ITC, requesting that the ITC commence an investigation under Section 337 of the Tariff Act of 1930, as amended. The ITC officially instituted an
investigation as requested by Tessera on January 3, 2008. The respondents named in the complaint were A-Data Technology



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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 will, 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 have 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 post-hearing briefs on October 31, 2008. On January 2, 2009, Judge Essex issued an order extending the target 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 target date for issuance of his initial determination regarding violation until May 22, 2009, and extend the target date for completion of the Commissions
investigation until September 22, 2009. On April 2, 2009, Judge Essex again extended the target date for issuance of his initial determination regarding violation, and the initial determination is now due by June 17, 2009. The
April 2, 2009 order also extended the target date for completion of the Commissions investigation until November 17, 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, 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 requests 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 is 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.



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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 have consented in part and opposed in part. The motion is currently under submission before
Judge Essex. There are currently various discovery and other motions pending before Judge Essex, including motions for sanctions filed by the Company and filed against the Company.

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

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

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

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.

Tessera, Inc. v. United Test and Assembly Center Limited, et al., Civil Action No. 05-04063 CW (N.D.Cal.)

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 April 1, 2009, Tessera filed a motion to compel various written discovery and documents from UTAC. A hearing on Tesseras motion is currently scheduled for May 19, 2009. A Case Management Conference
is also scheduled for May 19, 2009.



16



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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 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.

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.

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 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.

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.

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 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 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 will have an opportunity to respond.



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##### Table of Contents

The patents that are subject to these reexamination proceedings include some of the key patents in Tesseras
portfolio, and claims that have been preliminarily rejected in the current official actions are being asserted in certain of Tesseras various litigations. The Company cannot predict the outcome of these proceedings. An adverse decision in any
of these proceedings could significantly harm the Companys business and financial condition. An adverse decision could also significantly affect Tesseras ongoing litigations, as described 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.

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, presently scheduled for June 4, 2009, will be held before the
Opposition Division makes any further decisions in the proceeding. 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.

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 and miniaturization such as its μPILR platform.

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 SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information , 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.

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



|                                  |  |                    |         |   |               |   |        |  
|--------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------ | -
|                                  |  | Three Months Ended |        
|                                  |  | March 31,2009      |         |   | March 30,2008 |  
|Revenues:                         |  |                    |         |   |               |   |        |  
|Micro-electronics:                |  |                    |         |   |               |   |        |  
|Royalty and license fees          |  | $                  | 106,523 |   |               | $ | 46,257 |  
|Product and service revenues      |  |                    | 36      |   |               |   | 2,463  |  
|                                  |  |                    |         |   |               |   |        |  
|Total Micro-Electronics revenues  |  |                    | 106,559 |   |               |   | 48,720 |  
|                                  |  |                   
|Imaging and Optics:               |  |                    |         |   |               |   |        |  
|Royalty and license fees          |  |                    | 5,334   |   |               |   | 3,983  |  
|Product and service revenues      |  |                    | 2,683   |   |               |   | 6,648  |  
|Total Imaging and Optics revenues |  |                    | 8,017   |   |               |   | 10,631 |  
|                                  |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Total revenues                    |  |                    | 114,576 |   |               |   | 59,351 |  
|                                  |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Operating expenses:               |  |                    |         |   |               |   |        |  
|Micro-electronics Segment         |  |                    | 17,870  |   |               |   | 28,642 |  
|Imaging and Optics Segment        |  |                    | 18,640  |   |               |   | 15,820 |  
|Corporate overhead                |  |                    | 10,339  |   |               |   | 9,540  |  
|                                  |  |                    |         |   |               |   |        |  
|Total operating expenses          |  |                    | 46,849  |   |               |   | 54,002 |  
|                                  |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Operating income (loss)           |  |                    |         |   |               |   |        |  
|Micro-electronics Segment         |  |                    | 88,689  |   |               |   | 20,078 |  
|Imaging and Optics Segment        |  |                    | (10,623 | ) |               |   | (5,189 | )
|Corporate overhead                |  |                    | (10,339 | ) |               |   | (9,540 | )
|                                  |  |                    |         |   |               |   |        |  
|Total operating income            |  | $                  | 67,727  |   |               | $ | 5,349  |  
|                                  |  |                    |         |   |               |   |        |  



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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 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 |        
|                 |  | March 31,2009      |         |  | March 30,2008 |  
|United States    |  | $                  | 74,623  |  | 65            | % |  | $ | 18,937 |  | 32  | %
|Asia Pacific     |  |                    | 36,297  |  | 32            | % |  |   | 25,867 |  | 44  | %
|Europe and other |  |                    | 3,656   |  | 3             | % |  |   | 14,547 |  | 24  | %
|                 |  |                    |         |  |               |   |  |   |        |  |     |  
|                 |  | $                  | 114,576 |  | 100           | % |  | $ | 59,351 |  | 100 | %
|                 |  |                    |         |  |               |   |  |   |        |  |     |  

For the three months ended March 31, 2009, two customers each accounted for 10% or more of total revenues.
For the three months ended March 30, 2008, two customers each accounted for 10% or more of total revenues.

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



|              |  |                    |        |               |   |       
|------------- |  | ------------------ | ------ | ------------- | - | ------
|              |  | Three Months Ended
|              |  | March 31,2009      |        | March 30,2008
|United States |  | $                  | 37,682 |               | $ | 25,951
|Japan         |  |                    | 1,329  |               |   | 890   
|Ireland       |  |                    | 1,029  |               |   | 463   
|Israel        |  |                    | 333    |               |   | 2,381 
|Other         |  |                    | 5      |               |   | 8     
|              |  |                    |        |               |   |       
|Total         |  | $                  | 40,378 |               | $ | 29,693
|              |  |                    |        |               |   |       

NOTE 13  FAIR VALUE

Effective January 1, 2008, the Company adopted SFAS No. 157 (SFAS No. 157), Fair Value Measurements, which defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure requirements about fair value measurements. The Company measures its marketable securities at fair value and discloses fair value measurements in accordance with SFAS No. 157. 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 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The Company will adopt the provisions of
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides guidelines for making fair value
measurements more consistent with the principles presented in FASB Statement No. 157, in the second quarter of 2009.

SFAS No. 157 defines fair
value 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. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard 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.



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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 March 31, 2009 (in thousands):



|                                    |  |                  |         |                                                           |   |                                           |  |                                        |         |  |   |       
|----------------------------------- |  | ---------------- | ------- | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                    |  | Total Fair Value |         | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|Assets                              |  |                  |         |                                                           |   |                                           |  |                                        |         |  |   |       
|                                    |  |                  |         |                                                          
|Commercial paper (1)                |  | $                | 17,369  |                                                           | $ |                                          |  | $                                      | 17,369  |  | $ |      
|Money market mutual funds (1)       |  |                  | 86,547  |                                                           |   | 86,547                                    |  |                                        |        |  |   |      
|Corporate bonds and notes (2)       |  |                  | 40,017  |                                                           |   |                                          |  |                                        | 40,017  |  |   |      
|Government agency notes (3)         |  |                  | 49,278  |                                                           |   |                                          |  |                                        | 49,278  |  |   |      
|Variable rate demand notes (2)      |  |                  | 15,900  |                                                           |   |                                          |  |                                        | 15,900  |  |   |      
|Municipal bonds and notes (2)       |  |                  | 122,501 |                                                           |   |                                          |  |                                        | 122,501 |  |   |      
|Asset-backed securities (4)         |  |                  | 3,973   |                                                           |   |                                          |  |                                        |        |  |   | 3,973 
|Auction rate municipal bonds (4)    |  |                  | 18,570  |                                                           |   |                                          |  |                                        |        |  |   | 18,570
|Rights related to UBS agreement (5) |  |                  | 930     |                                                           |   |                                          |  |                                        |        |  |   | 930   
|                                    |  |                  |         |                                                           |   |                                           |  |                                        |         |  |   |       
|Total Assets                        |  | $                | 355,085 |                                                           | $ | 86,547                                    |  | $                                      | 245,065 |  | $ | 23,473
|                                    |  |                  |         |                                                           |   |                                           |  |                                        |         |  |   |       



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



|(1) | Commercial paper and money market mutual funds 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) | Government agency notes 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 three months ended March 31, 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 |  |                 |       |   |                                                  |   | (2,146 | )              |  |   | (2,146 | )
|Total gains or losses (realized and unrealized): |  |                 |        |   |                                                  |   |        |                |  |   |       |  
|Included in earnings                             |  |                 | (3,022 | ) |                                                  |   | 1,405  |                |  |   | (1,617 | )
|Included in other comprehensive income           |  |                 |       |   |                                                  |   | 1,150  |                |  |   | 1,150  |  
|Issuance of the Rights related to UBS agreement  |  |                 |       |   |                                                  |   |       |                |  |   |       |  
|Transfers in/(out) of Level 3                    |  |                 |       |   |                                                  |   |       |                |  |   |       |  
|                                                 |  |                 |        |   |                                                  |   |        |                |  |   |        |  
|Balance at March 31, 2009                        |  | $               | 930    |   |                                                  | $ | 22,543 |                |  | $ | 23,473 |  
|                                                 |  |                 |        |   |                                                  |   |        |                |  |   |        |  

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 SFAS No. 159, at fair value. 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 in accordance with SFAS 115, Accounting for Certain Debt and Equity Investments, 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 month period ended March 31, 2009, the Company
recorded $3.0 million of unrealized gains in relation to the increase in the fair value of the ARS investment and an offsetting entry of approximately $3.0 million related to the decrease 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 14  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 March 31, 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 months ended
March 31, 2009 and March 30, 2008, revenue from NemoTek represented less than 1 percent of total revenue. The amount due from NemoTek under the license as of March 31, 2009 was $1.1 million. As of December 31, 2008, the amount
due from NemoTek under the license was $1.5 million.



20



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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 and development (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 (SEC), such as our annual reports on Form 10K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance,
value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date
of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of
this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition,
results of operations and prospects.

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 develops and delivers miniaturization solutions that
transform wireless, computing, and consumer electronic products. Our Micro-electronics solutions enable smaller, higher-functionality electronic devices and include semiconductor packaging technologies encompassing interconnect and substrates. Our
Imaging & Optics solutions provide low-cost, high-quality camera functionality in electronic products and include image sensor packaging, wafer-level optics and wafer-level camera technologies, and image enhancement technologies. We also
offer customized micro-optic lenses, from diffractive and refractive optical elements to integrated micro-optical subassemblies. We license our technologies worldwide, as well as deliver products based on these technologies, some of which is
done to promote the development of supply chain infrastructure.

Our intellectual property includes approximately 1,560 domestic and internationally issued
patents and patent applications, covering a range of advanced semiconductor packaging, substrate, interconnect and imaging and optics technologies.

We
have two reportable segments: Micro-electronics and Imaging & 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. Imaging & 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 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 solutions
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Imaging and 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. 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | 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:
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | 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 FaceTracker solution detects the presence of human faces in pictures.
| | - |  | --------------------------------------------------------------------------------

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 February 2008, we completed our acquisition of FotoNation, a Delaware corporation. In February 2007, we completed our acquisition of Eyesquad GmbH (Eyesquad), 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 (Digital Optics), a Delaware corporation. In December 2005, we
completed our purchase of certain assets of Shellcase, Ltd., an Israeli company.



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##### Table of Contents

Results of Operations

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



|                                              |  |                    |   |  |               |  
|--------------------------------------------- |  | ------------------ | - |  | ------------- | -
|                                              |  | Three Months Ended |  
|                                              |  | March 31,2009      |   |  | March 30,2008 |  
|Revenues:                                     |  |                    |   |  |               |  
|Royalty and license fees                      |  | 98                 | % |  | 85            | %
|Product and service revenues                  |  | 2                  |   |  | 15            |  
|                                              |  |                    |   |  |               |  
|Total revenues                                |  | 100                |   |  | 100           |  
|                                              |  |                    |   |  |               |  
|                                              |  |                   
|Operating expenses:                           |  |                    |   |  |               |  
|Cost of revenues                              |  | 4                  |   |  | 7             |  
|Research, development and other related costs |  | 14                 |   |  | 24            |  
|Selling, general and administrative costs     |  | 15                 |   |  | 26            |  
|Litigation expense                            |  | 8                  |   |  | 34            |  
|                                              |  |                    |   |  |               |  
|Total operating expenses                      |  | 41                 |   |  | 91            |  
|                                              |  |                   
|Operating income                              |  | 59                 |   |  | 9             |  
|Other income and expense, net                 |  | 2                  |   |  | 5             |  
|                                              |  |                    |   |  |               |  
|                                              |  |                   
|Income before taxes                           |  | 61                 |   |  | 14            |  
|Provision for income taxes                    |  | 27                 |   |  | 10            |  
|                                              |  |                    |   |  |               |  
|Net income                                    |  | 34                 | % |  | 4             | %
|                                              |  |                    |   |  |               |  

Revenues

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



|                             |  |                            |         |  |               |   |  |                     |        |  |         |   |  |   |        |   |  |     |  
|---------------------------- |  | -------------------------- | ------- |  | ------------- | - |  | ------------------- | ------ |  | ------- | - |  | - | ------ | - |  | --- | -
|                             |  | For the Three Months Ended |         |  |               |   |  |                     |       
|                             |  | March 31,2009              |         |  | March 30,2008 |   |  | Increase/(Decrease) |        |  | %Change |  
|Royalty and license fees     |  | $                          | 111,857 |  | 98            | % |  | $                   | 50,240 |  | 85      | % |  | $ | 61,617 |   |  | 123 | %
|Product and service revenues |  |                            | 2,719   |  | 2             |   |  |                     | 9,111  |  | 15      |   |  |   | (6,392 | ) |  | (70 | )
|                             |  |                            |         |  |               |   |  |                     |        |  |         |  
|Total revenues               |  | $                          | 114,576 |  | 100           | % |  | $                   | 59,351 |  | 100     | % |  | $ | 55,225 |   |  | 93  | %
|                             |  |                            |         |  |               |   |  |                     |        |  |         |  

Revenues for the three months ended March 31, 2009 were $114.6 million as compared to $59.4 million for the
three months ended March 30, 2008, an increase of $55.2 million, or 93%. The overall increase in revenues in the three months ended March 31, 2009 as compared to 2008 is primarily due to royalty revenue of $60.6 million from Amkor
Technology, Inc. in February 2008, awarded by the arbitration panel for Amkors material breach of its license agreement with Tessera, offset by continued softness in the photolithography industry and the reduction in revenue from government
funded projects.

Cost of Revenues

Cost of revenues
primarily consists of direct compensation, materials, amortization of intangible assets related to acquired technologies, supplies and depreciation expense. Cost of revenues primarily relates to product and service revenues. Cost of revenues
associated with royalty and license fee revenues is de minimis. For each associated period, cost of revenues as a percentage of total revenues varies based on the product and service revenues component of total revenues, and on the mix of product
sales to semiconductor optics and communications industries. For the three months ended March 31, 2009, cost of revenues represented 151% of product and service revenues, which is a result of the decline of product sales in the photolithography
industry. For the three months ended March 30, 2008, cost of revenues represented 48% of product and service revenues.

Cost of revenues for the three
months ended March 31, 2009 was $4.1 million, as compared to $4.3 million for the three months ended March 30, 2008, a decrease of $0.2 million, or 5%. The decrease was primarily attributable to the transition of our resources from
government funded projects into research and development projects and the decrease in personnel expense, offset by an increase in amortization of acquired intangible assets.

Research, Development and Other Related Costs

Research, development and other related (R&D) costs
for the three months ended March 31, 2009 were $16.6 million, an increase of $2.5 million, or 18%, as compared to $14.2 million for the three months ended March 30, 2008. The increase in the three month period was primarily due to
increased personnel related and outside service expenses of $3.2 million primarily related to increased headcount, increased stock-based compensation expense of $1.3 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 the FotoNation acquisition. R&D headcount increased from 259 at
March 30, 2008 to a total of 275 at March 31, 2009.

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



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##### Table of Contents

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 and related trade show expenses. General and
administrative expenses consist primarily of compensation and related costs for general management, information technology, finance and accounting personnel, legal expenses, facilities costs 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 March 31, 2009 were $17.5 million, an increase of $2.2 million, or 14%, as compared to $15.3 million for the three months ended March 30, 2008. The increase was primarily
attributable to an increase of $0.8 million in personnel-related expenses, $0.6 million in stock-based compensation expense, $0.4 million in facilities expense related to the new corporate headquarters and $0.3 million in marketing expense, offset
by a decrease of $0.6 million in general legal consulting expenses.

Litigation Expense.Litigation expense for the three months ended
March 31, 2009 was $8.6 million, as compared to $20.2 million for the three months ended March 30, 2008, a decrease of $11.6 million, or 57%. The decrease was primarily attributable to a decrease in case activities in our legal proceedings
related to the International Trade Commission. Refer to Part II, Item 1 Legal Proceedings for additional details.

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

Stock-based Compensation Expense

The following table sets forth our stock-based compensation expense for the periods
indicated (in thousands):



|                                            |  |                    |       |               |   |      
|------------------------------------------- |  | ------------------ | ----- | ------------- | - | -----
|                                            |  | Three Months Ended
|                                            |  | March 31,2009      |       | March 30,2008
|Cost of revenues                            |  | $                  | 111   |               | $ | 105  
|Research, development & other related costs |  |                    | 2,667 |               |   | 1,411
|Selling, general & administrative           |  |                    | 3,538 |               |   | 2,977
|                                            |  |                    |       |               |   |      
|Total stock-based compensation expense      |  | $                  | 6,316 |               | $ | 4,493
|                                            |  |                    |       |               |   |      

The stock-based compensation expense categorized by various equity components for the three months ended
March 31, 2009 and 2008 is summarized in the table below (in thousands):



|                                       |  |                    |       |               |   |      
|-------------------------------------- |  | ------------------ | ----- | ------------- | - | -----
|                                       |  | Three Months Ended
|                                       |  | March 31,2009      |       | March 30,2008
|Employee stock options                 |  | $                  | 3,444 |               | $ | 2,435
|Restricted stock awards                |  |                    | 2,454 |               |   | 1,654
|Employee stock purchase plan           |  |                    | 418   |               |   | 404  
|                                       |  |                    |       |               |   |      
|Total stock-based compensation expense |  | $                  | 6,316 |               | $ | 4,493
|                                       |  |                    |       |               |   |      

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 March 31, 2009 and 2008 was $6.3 million and $4.5 million, respectively. The overall increase was primarily related to an increase in
grants of stock awards to employees based on our compensation incentive program. 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 months ended March 31, 2009 and March 30, 2008 was income of $2.8 million and $2.8 million, respectively. Other income and expense, net, for the three month period ended March 31, 2009 consisted of an increase related to
interest and other income of $1.6 million offset by an other-than-temporary write-down of our asset-backed securities of $1.6 million in the quarter ended March 31, 2009.

Provision for Income Taxes

The provision for income taxes for the three months ended March 31, 2009 and 2008
was $31.0 million and $6.0 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 months
ended March 31, 2009 as compared to the three months ended March 30, 2008 was primarily attributable to the increase in pre-tax income for the period, taxed at the statutory income tax rate, and off-set by non-benefitted tax losses in
foreign jurisdictions.

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
and miniaturization such as our μPILR platform.



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##### Table of Contents

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.

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 SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. 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 |        
|                                  |  | March 31,2009      |         |   | March 30,2008 |  
|Revenues:                         |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Micro-electronics:                |  |                    |         |   |               |   |        |  
|Royalty and license fees          |  | $                  | 106,523 |   |               | $ | 46,257 |  
|Product and service revenues      |  |                    | 36      |   |               |   | 2,463  |  
|                                  |  |                    |         |   |               |   |        |  
|Total Micro-Electronics revenues  |  |                    | 106,559 |   |               |   | 48,720 |  
|                                  |  |                   
|Imaging and Optics:               |  |                    |         |   |               |   |        |  
|Royalty and license fees          |  |                    | 5,334   |   |               |   | 3,983  |  
|Product and service revenues      |  |                    | 2,683   |   |               |   | 6,648  |  
|                                  |  |                    |         |   |               |   |        |  
|Total Imaging and Optics revenues |  |                    | 8,017   |   |               |   | 10,631 |  
|                                  |  |                   
|Total revenues                    |  |                    | 114,576 |   |               |   | 59,351 |  
|                                  |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Operating expenses:               |  |                    |         |   |               |   |        |  
|Micro-electronics Segment         |  |                    | 17,870  |   |               |   | 28,642 |  
|Imaging and Optics Segment        |  |                    | 18,640  |   |               |   | 15,820 |  
|Corporate overhead                |  |                    | 10,339  |   |               |   | 9,540  |  
|                                  |  |                    |         |   |               |   |        |  
|Total operating expenses          |  |                    | 46,849  |   |               |   | 54,002 |  
|                                  |  |                    |         |   |               |   |        |  
|                                  |  |                   
|Operating income (loss)           |  |                    |         |   |               |   |        |  
|Micro-electronics Segment         |  |                    | 88,689  |   |               |   | 20,078 |  
|Imaging and Optics Segment        |  |                    | (10,623 | ) |               |   | (5,189 | )
|Corporate overhead                |  |                    | (10,339 | ) |               |   | (9,540 | )
|                                  |  |                    |         |   |               |   |        |  
|Total operating income            |  | $                  | 67,727  |   |               | $ | 5,349  |  
|                                  |  |                    |         |   |               |   |        |  

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, insurance and board fees. For the three months
ended March 31, 2009 corporate overhead expenses were $10.3 million compared to $9.5 million for the three months ended March 30, 2008. The increases from the three months ended March 30, 2008 were primarily attributable to an
increase in personnel related expenses.

Micro-electronics Segment

Micro-electronics revenues for the three months ended March 31, 2009 were $106.6 million as compared to $48.7 million for the three months ended March 30, 2008, which represented an increase of $57.9
million, or 119%. The increase was primarily attributed to royalty revenue of $60.6 million from Amkor, awarded for their material breach of their license agreement with our Company.

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 March 31, 2009
were $17.9 million and consisted primarily of cost of revenues of $0.2 million, R&D costs of $7.0 million, SG&A costs of $2.1 million and $8.6 million in litigation expenses. Operating expenses for the three months ended March 31, 2009
of $17.9 million represented a decrease of $10.7 million as compared to $28.6 million for the three months ended March 30, 2008, which was primarily attributable to a decrease in litigation expenses of $11.6 million, offset by an increase in
outside consulting expenses of $0.6 million.

We expect that litigation expenses will continue to be a material portion of the Micro-electronics
segments operating expenses in future periods, and may increase significantly in some periods, because of our ongoing legal actions, as described in Part II, Item 1 Legal Proceedings.

Operating income for the three months ended March 31, 2009 and March 30, 2008 was $88.6 million and $20.1 million, respectively, which represented an increase
of $68.6 million, or 342%, for the reasons stated above.



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##### Table of Contents

Imaging and Optics Segment

Imaging and optics revenues for the three months ended March 31, 2009 were $8.0 million as compared to $10.6 million for the three months ended March 30, 2008, a decrease of $2.6 million, or 25%. The decrease in Imaging and optics
revenues was primarily attributable to a reduction in government funded projects, which reflects our planned transition from the government and government agency customers by the end of 2008, and continued softness in the photolithography industry.

Operating expenses for the three months ended March 31, 2009 were $18.6 million and consisted of cost of revenues of $3.9 million, R&D costs of
$9.6 million and SG&A costs of $5.1 million. Operating expenses for the three months ended March 30, 2008 were $15.8 million. The increase of $2.8 million in total operating expenses from the three months ended March 30, 2008 was
primarily due to increases in personnel related expenses of $1.9 million, increases in stock-based compensation expense of $1.7 million, increased outside services expense of $0.7 million and an increase in amortization expense of acquired
intangible assets of $0.4 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.

Operating loss for the three months ended March 31, 2009 and March 30, 2008 was $10.6 million and $5.2 million, respectively, which represented an increased loss of $5.4 million, or 105%, primarily driven by
decreases in revenues as discussed above.

Liquidity and Capital Resources



|                                                                   |  |                    |         |   |                       |   |         |  
|------------------------------------------------------------------ |  | ------------------ | ------- | - | --------------------- | - | ------- | -
|(in thousands, except for percentages)                             |  | As ofMarch 31,2009 |         |   | As ofDecember 31,2008 |  
|Cash and cash equivalents                                          |  | $                  | 153,761 |   |                       | $ | 87,890  |  
|Short-term investments                                             |  | $                  | 207,503 |   |                       | $ | 188,610 |  
|Long-term investments                                              |  | $                  | 22,543  |   |                       | $ | 22,134  |  
|                                                                   |  |                    |         |   |                       |   |         |  
|Total cash, cash equivalents, short-term and long-term investments |  |                    | 383,807 |   |                       |   | 298,634 |  
|                                                                   |  |                    |         |   |                       |   |         |  
|                                                                   |  |                   
|Percentage of total assets                                         |  |                    | 67      | % |                       |   | 60      | %
|                                                                   |  |                    |         |   |                       |   |         |  
|                                                                   | 
|                                                                   |  | Three Months Ended |        
|                                                                   |  | March 31,2009      |         |   | March 30,2008         |  
|Net cash provided by operating activities                          |  | $                  | 85,764  |   |                       | $ | 9,532   |  
|Net cash used in investing activities                              |  | $                  | (22,477 | ) |                       | $ | (82,732 | )
|Net cash provided by (used in) financing activities                |  | $                  | 2,584   |   |                       | $ | (7,131  | )

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 $383.8 million at March 31, 2009, an increase of $85.2 million from $298.6 million at December 31, 2008. Cash and cash equivalents were $153.8
million at March 31, 2009, an increase of $65.9 million from $87.9 million at December 31, 2008. The increase in cash and cash equivalents was primarily the result of $85.8 million in cash provided by operating activities, $2.6 million in
cash provided by financing activities, offset by $22.5 million net cash used in investing activities.

Cash flows from operations were $85.8 million for
the three months ended March 31, 2009, primarily due to net income of $39.5 million, adjusted for non-cash items of depreciation and amortization of $5.0 million, impairment charge of long-term investments of $1.6 million, stock-based
compensation expense of $6.3 million, and an increase in income tax payable of $25.3 million.

Cash flows from operations were $9.5 million for the three
months ended March 30, 2008, primarily due to net income of $2.2 million, adjusted for non-cash items of depreciation and amortization of $4.3 million, in-process R&D expense of $2.5 million, and stock-based compensation expenses of $4.5
million, an increase in income tax payable of $4.6 million and an increase in accounts payable and accrued legal of $2.9 million. Increases were partially offset by an increase in accounts receivable of $8.1 million and a decrease in accrued
liabilities of $3.1 million.

Net cash used in investing activities was $22.5 million in the three months ended March 31, 2009, primarily related to
purchases of short-term investments of $52.8 million, purchases of property and equipment of $5.7 million, increase in equity investments of $0.9 million, offset by proceeds from maturities and sales of investments of $35.4 million.

Net cash used in investing activities was $82.7 million in the three months ended March 30, 2008, primarily related to purchases of short-term and long-term
investments of $112.5 million, purchases of property and equipment of $1.7 million, consideration paid for the acquisition of a subsidiary completed in February 2008 and certain patents of $32.1 million, offset by proceeds from maturities and sales
of short-term and long-term investments of $63.5 million.

The primary objective of our investment activities is to preserve principal 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 government agency notes, 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 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. Realized gains or losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are reported in other income, net. The fair values for our securities are determined
based on quoted market prices as of the valuation date, observable prices for similar assets and externally provided pricing models. We evaluate all of our investments periodically for possible other-than-temporary impairment and review factors such
as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and our ability and intent to hold the investment for a period of time which may be sufficient for an anticipated recovery in
market value. 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.



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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, under the provisions of SFAS No. 159 (SFAS No. 159), The Fair Value Option for Financial
Assets and Financial Liabilities, 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 in accordance with SFAS 115, Accounting for Certain Debt and Equity Investments, 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 three month period ended March 31, 2009, we recorded $3.0 million of unrealized gains in relation to the
increase in the fair value of the ARS investments and an offsetting entry of approximately $3.0 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 asset-backed securities, including mortgaged-backed securities (collectively ABS) investments and ARS have 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 $1.6 million in the first quarter of 2009. Unrealized losses of $0.3 million, net of tax, related to a temporary decline in the fair value of the
remaining available-for-sale securities were recorded during the first quarter of 2009 in accumulated other comprehensive loss as a reduction in stockholders equity.

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 intend and 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 $361.3 million at March 31, 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 $2.6 million for the three months ended March 31, 2009, due to
$1.1 million from the issuance of common stock under our employee stock purchase plans and $1.5 million of excess tax benefits from stock compensation expense for the period. Net cash used in financing activities was $7.1 million in the three months
ended March 30, 2008, due to the repurchase of common stock for $10.0 million offset by $2.8 million from the issuance of common stock under our employee stock option programs and employee stock purchase plans.

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. Under the plan in the three months ended March 30, 2008, we repurchased 630,000 shares of common stock at a cost of
$10.0 million at an average price of $15.78 per share. As of March 31, 2009 and March 30, 2008, 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.

Contractual Cash Obligations



|                            |  |                        |        |          |   |          |  |            |       |  |   |      
|--------------------------- |  | ---------------------- | ------ | -------- | - | -------- |  | ---------- | ----- |  | - | -----
|                            |  | Payments Due by Period
|                            |  | Total                  |        | 1-3Years |   | 4-5Years |  | Thereafter
|                            |  | (In thousands)        
|Operating lease obligations |  | $                      | 10,718 |          | $ | 4,905    |  | $          | 3,404 |  | $ | 2,409
|Purchase obligations        |  |                        | 2,279  |          |   | 2,279    |  |            |      |  |   |     
|                            |  |                        |        |          |   |          |  |            |       |  |   |      
|Total                       |  | $                      | 12,997 |          | $ | 7,184    |  | $          | 3,404 |  | $ | 2,409
|                            |  |                        |        |          |   |          |  |            |       |  |   |      

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 Financial Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007, we have recognized approximately $4.4 million in the liability for
unrecognized tax benefits, including accrued interest and penalties. At this time, we are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. As a result, this
amount is not included in the table above.

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

Off-Balance Sheet Arrangements and Related Party Transactions

As of March 31, 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
March 31, 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 months ended March 31, 2009 and March 30, 2008, revenue from NemoTek
represented less than 1 percent of the Companys total revenue. The amount due from NemoTek under the license as of March 31, 2009 was $1.1 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

Critical Accounting Estimates

During the three months ended March 31, 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.

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

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

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

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)

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 before the International Trade Commission (ITC). On August 5, 2008, the court ordered that this action be further stayed pending completion 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 action, 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.



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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.

The trial in this case has been scheduled to begin on September 28, 2009, and discovery is ongoing. 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 will, among other things, investigate infringement of U.S. Patent
Nos. 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 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 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, and the parties have now submitted their initial responses.

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. At this time, the ITC has not taken any action regarding Spansions Notice.

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.

A final determination from the Commission is currently scheduled to be issued by May 20,
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. 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. 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 will, 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 have 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 post-hearing briefs on October 31, 2008. On January 2, 2009, Judge Essex issued an order extending the target 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 target date for issuance of his initial determination regarding violation until
May 22, 2009, and extend the target date for completion of the Commissions investigation until September 22, 2009. On April 2, 2009, Judge Essex again extended the target date for issuance of his initial determination regarding
violation, and the initial determination is now due by June 17, 2009. The April 2, 2009 order also extended the target date for completion of the Commissions investigation until November 17, 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, 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 requests 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 is 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



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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 have consented in part and opposed in part. The motion is currently under submission before Judge Essex. There are currently
various discovery and other motions pending before Judge Essex, including motions for sanctions filed by the Company and filed against the Company.

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

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

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

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.

Tessera, Inc. v. United Test and Assembly Center Limited, et al., Civil Action No. 05-04063 CW (N.D.Cal.)

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.



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On April 1, 2009, Tessera filed a motion to compel various written discovery and documents from UTAC. A hearing on
Tesseras motion is currently scheduled for May 19, 2009. A Case Management Conference is also scheduled for May 19, 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.

Reexamination Proceedings

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

The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,465,893 initially
rejecting a number of patent claims on May 4, 2007, to which a response was filed on July 5, 2007. The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,433,419
initially rejecting a number of the patent claims on June 5, 2007, to which a response was filed by Tessera on August 6, 2007. On September 5, 2007, Siliconware filed comments in response to the Companys August 6, 2007
response. On March 14, 2007, Siliconware filed a second request for ex parte reexamination of U.S. Patent No. 5,679,977. The PTO granted this request on June 12, 2007. On May 21, 2007, Amkor filed a request for ex
parte reexamination of U.S. Patent No. 5,861,666. On July 26, 2007, the PTO granted this request. On June 11, 2007, Amkor filed additional requests for reexamination regarding U.S. Patent Nos. 5,679,977 and 6,133,627. The PTO
granted the request for reexamination as to the 5,679,977 patent on August 15, 2007, and the PTO granted the requests for reexamination as to the 6,133,627 patent on August 13, 2007.

A first official action rejecting some claims and confirming other claims as patentable was mailed February 21, 2008 in the reexamination of U.S. Patent
No. 5,852,326. A response to the official action in the reexamination of U.S. Patent No. 5,852,326 was filed on April 21, 2008. A second office action rejecting some claims and confirming other claims as patentable was mailed on
August 1, 2008. Tessera filed a response to the official action on October 1, 2008. A third, final official action rejecting all claims under reexamination was mailed on March 6, 2009. Tessera filed a response to the official action
on April 6, 2009.

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.

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 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.

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.

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 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 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 will have an opportunity to respond.



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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.

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, presently scheduled for June 4, 2009, will be held before the
Opposition Division makes any further decisions in the proceeding. 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.



|Item 1A. | Risk Factors
|-------- | ------------

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

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

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

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

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

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



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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 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 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.

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.

Our revenues may suffer if we cannot continue to license or enforce our
intellectual property rights or if third parties assert that we violate their intellectual property rights.

We rely upon patent, copyright, trademark
and trade secret laws in the United States and other countries, and agreements with our employees, customers, suppliers and other parties, to establish and maintain our intellectual property rights in our technology. However, any of our direct or
indirect intellectual property rights could be challenged, invalidated or circumvented. Further, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws 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. Third parties also 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 sell our products.

The semiconductor industry is highly concentrated in that a small number of
semiconductor designers and manufacturers account for a substantial portion of the purchases of semiconductor products generally, including our products and products incorporating technologies that we may acquire. Consolidation in the semiconductor
industry may increase this concentration. Accordingly, we expect that 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 months ended March 31, 2009, there were two 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, in order to maintain our relationships with licensees under such agreements, we will need to
renegotiate some of our existing license agreements in the future.

Some of our license agreements have fixed terms. We will need to renegotiate license
agreements with fixed terms prior to the expiration of such license agreements and, based on various factors including the technology and business needs of our licensees, we may not be able to renegotiate such license agreements on similar terms,



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or at all. In order to maintain existing relationships with some of our licensees, we may be forced to renegotiate license agreements on terms that are more
favorable to such licensees, which could harm our results of operations. If we fail to renegotiate 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. A significant conversion of our license agreements to fully paid-up licenses could materially harm our results of operations
following such conversion.

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 in which royalties are
paid on a per package 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;
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| |  |  | 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 be profitable or could 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, and μPILR packaging technology. Investments in new technologies are speculative. 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.

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 designs to 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 plan to devote significant engineering resources in order 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 or designs 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



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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 currently issued U.S. patents expire at various times from March 9, 2010 through August 10, 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------

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 Samsung Electronics, Co., Ltd., Qimonda AG, Hynix Semiconductor Inc. and Micron Technology, Inc., 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 cannot make or delay 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, such as the technologies acquired from Eyesquad GmbH, Digital Optics Corporation, Shellcase, Ltd., North Corporation and FotoNation, into our products. However,
if customers do not accept the way



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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 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 & 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 packaging technology. In addition, ongoing litigation could impact our ability to gain new licensees.

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.

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

We currently provide guidance on revenue, expenses and cash taxes 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;
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| |  |  | 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.
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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 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 and other factors, the price at which our common stock will trade is likely to continue to be highly volatile. In future periods, if our revenues or operating results are below our estimates or the estimates or
expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has often been brought against companies following a decline in the market price of their securities. Technology
companies have experienced greater than average stock price volatility than companies in many other industries in recent years and, as a result, have, on average, been subject to a greater number of securities class action claims. 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 March 31, 2009, we held $153.8 million in cash and cash equivalents and $230.0 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, agency bonds and notes, money market funds
meeting certain criteria, 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 March 31, 2009 include $22.6 million in auction rate municipal bond securities (ARS) and asset-backed securities, including
mortgaged-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 three months ended March 31, 2009, we recorded a loss to earnings of $1.6 million due to an other-than-temporary impairment of ABS investments and a gain of $3.0 million on the
increase in fair value of our ARS investments, offset by a loss of $3.0 million to earnings related to the UBS rights discussed in Note 13 Fair value in the Notes to Condensed Consolidated Financial Statements in this
report. In addition, we have recorded net unrealized losses of $0.3 million, 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 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.

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 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 or the questioning of current practices 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 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;
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| |  |  | 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;
| | - |  | -------------------------------------------------------------------------------



| |  |  | 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, such as India, 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 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



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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 SFAS 123(R), Share-Based Payment, we have recorded increased compensation costs associated with our stock-based compensation programs. With the decline of our stock price in the last year, many of our employees now hold stock
options with exercise prices significantly higher than the current market price of our common stock. We have made a proposal to the stockholders at the next annual meeting to approve a one-time stock option exchange program intended to provide
incentive to help retain and motivate our employees. Difficulties relating to obtaining stockholder approval of equity compensation plans could make it harder or more expensive for us to grant stock- based compensation to employees in the future. As
a result, we may find it difficult to attract, retain and motivate employees, and any such difficulty could materially adversely affect our business.

Failure to comply with environmental regulations could harm our business.

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

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

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

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 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. 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
acquisitions 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.



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There are numerous risks with our recent acquisitions, which include FotoNation, Inc., Eyesquad GmbH and Digital
Optics Corporation and certain assets from Shellcase, Ltd. and North Corporation.

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 the following:



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



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



| |  |  | The integration of Eyesquad GmbH, Digital Optics Corporation, FotoNation, Inc. and of the Shellcase, Ltd. and the North Corporation assets and personnel 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 Eyesquad GmbH, Digital Optics Corporation, FotoNation, Inc. and the assets of Shellcase, Ltd. and North Corporation. The total cost of the integration may exceed our expectations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales of 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.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not
applicable.



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|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
|------- | --------



|               |  |                                                                                                                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Title                                                                                                                                                                                                                                      
|3.1            |  | Restated Certificate of Incorporation (filed as an exhibit to registrants Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003, and
incorporated herein by reference)                                        
|               | 
|3.2            |  | Amended and Restated Bylaws, as amended on 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)                                               
|               | 
|10.1+          |  | Consulting Agreement, dated April 3, 2009, between Tessera, Inc. and Bruce M. McWilliams (filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K/A, filed on April 6, 2009,
and incorporated herein by reference)                    
|               | 
|10.2+          |  | Employment Transition and Consulting Agreement, dated April 3, 2009, between Tessera, Inc. and Scot A. Griffin (filed as Exhibit 10.2 to the Registrants Current Report on Form 8-K,
filed on April 3, 2009, and incorporated herein by reference)
|               | 
|10.3+          |  | Form of Severance Agreement with the Registrants executive officers (filed as Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed on April 3, 2009, and incorporated
herein by reference)                                          
|               | 
|10.4+          |  | Form of Amended and Restated Change in Control Severance Agreement with the Registrants executive officers (filed as Exhibit 10.4 to the Registrants Current Report on Form 8-K,
filed on April 3, 2009, 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        



|+ | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------



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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: May 5, 2009        
|                          
|Tessera Technologies, Inc.
|                           | 
|By:                        |  | /s/    Michael Anthofer                             
|                           |  | Michael Anthofer                                    
|                           |  | Executive Vice President and Chief Financial Officer



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EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Title                                                                                                                                                                                                                                      
|3.1            |  | Restated Certificate of Incorporation (filed as an exhibit to registrants Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003, and
incorporated herein by reference)                                        
|               | 
|3.2            |  | Amended and Restated Bylaws, as amended on 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)                                               
|               | 
|10.1+          |  | Consulting Agreement, dated April 3, 2009, between Tessera, Inc. and Bruce M. McWilliams (filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K/A, filed on April 6, 2009,
and incorporated herein by reference)                    
|               | 
|10.2+          |  | Employment Transition and Consulting Agreement, dated April 3, 2009, between Tessera, Inc. and Scot A. Griffin (filed as Exhibit 10.2 to the Registrants Current Report on Form 8-K,
filed on April 3, 2009, and incorporated herein by reference)
|               | 
|10.3+          |  | Form of Severance Agreement with the Registrants executive officers (filed as Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed on April 3, 2009, and incorporated
herein by reference)                                          
|               | 
|10.4+          |  | Form of Amended and Restated Change in Control Severance Agreement with the Registrants executive officers (filed as Exhibit 10.4 to the Registrants Current Report on Form 8-K,
filed on April 3, 2009, 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        



|+ | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------



45