UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-K

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|ý  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|-- | ----------------------------------------------------------------------------------------
|   | For the fiscal year ended December 31, 2004                                             
|or
|o  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   | For the transition period
from                             to                           

Commission file number 000-27765

Symyx Technologies, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                            |  | 77-0397908(IRS Employer
Identification Number)                    
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------
|3100 Central Expressway,
Santa Clara, California 95051(Address of principal executive
offices including zip code) |  | (408) 764-2000(Registrant's telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value

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.    ý Yes    o No

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).    ý Yes    o No

The approximate aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2004 (the last business day of
the registrant's most recently completed second fiscal quarter) was $731,671,000, based on the closing price for the common stock on the Nasdaq National Market on such date.

As
of February 24, 2005, 32,524,058 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be filed in connection with the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Annual Report on Form 10-K where indicated.



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TABLE OF CONTENTS

|ITEM       |  |                                                                                                              |  | Page
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I    
|1.         |  | Business                                                                                                     |  | 1   
|2.         |  | Properties                                                                                                   |  | 23  
|3.         |  | Legal Proceedings                                                                                            |  | 23  
|4.         |  | Submission of Matters to a Vote of Security Holders                                                          |  | 23  
|PART II   
|5.         |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |  | 24  
|6.         |  | Selected Financial Data                                                                                      |  | 26  
|7.         |  | Management's Discussion and Analysis of Financial Condition and Results of Operation                         |  | 27  
|7A.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 45  
|8.         |  | Financial Statements and Supplementary Data                                                                  |  | 46  
|9.         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 88  
|9A.        |  | Controls and Procedures                                                                                      |  | 88  
|9B.        |  | Other Information                                                                                            |  | 88  
|PART III  
|10.        |  | Directors and Executive Officers of the Registrant                                                           |  | 89  
|11.        |  | Executive Compensation                                                                                       |  | 89  
|12.        |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 89  
|13.        |  | Certain Relationships and Related Transactions                                                               |  | 89  
|14.        |  | Principal Accountant Fees and Services                                                                       |  | 89  
|PART IV   
|15.        |  | Exhibits and Financial Statement Schedules                                                                   |  | 90  
|Signatures |  | 93                                                                                                          

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PART I

Item 1.Business

This discussion and other parts of this Annual Report on Form 10-K ("Report"), including the "Management's Discussion and Analysis of Financial
Condition and Results of Operation," contain forward-looking statements that involve risks and uncertainties, within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements typically may be identified by the use of forward-looking words or phrases such as "may," "will," "believe,"
"expect," "plan," "intend," "goal," "anticipate," "should," "planned," "estimated," "potential," and "continue," or the negative thereof or other comparable terminology regarding beliefs, plans,
expectations or intentions regarding the future. The cautionary statements made in this Annual Report on Form 10-K should be read as being applicable to all related forward-looking
statements whenever they appear in this Annual Report on Form 10-K.

Forward-looking statements include, without limitation, statements regarding: the statement regarding our belief that we can transform the
chemical and petrochemical, pharmaceutical, electronics, consumer goods, and automotive companies by discovering break-through new materials faster and more cost effectively than by using traditional
methods; the statement regarding our ability to transform how our customers perform research, by providing Discovery Tools, software, and patented methods that they can apply to increase their
research productivity; the statement that we continue to expand our capabilities through the development of new instruments and software and enhanced versions of existing systems; the statement
regarding our intent to continue to enter into new strategic alliances and collaborative arrangements; the statement regarding our expectations that new collaborations will come from existing partners
extending programs and undertaking new research initiatives as well as from new partners; the statement that we have created a growing pipeline of materials that have emerged from our discovery
platform; the statement regarding our expectation to receive royalties from the sale of sensors, or that we could become a supplier of sensors; the statement regarding our belief that our proprietary
database will emerge as a powerful tool in accelerating materials discovery by enabling our scientists to benefit from the cumulative effect of our research; the statement that we will realize a
revenue backlog in the fiscal year 2005 and beyond; the statement regarding our intent to augment the already committed revenue base with new and extended collaborations, new tools sales, and new
intellectual property and software licenses; the statement regarding our belief that our future success depends in part upon our continued ability to hire and retain qualified personnel; the statement
regarding our expectations that ExxonMobil, Dow, and a select list of other companies will in aggregate continue to account for a substantial portion of our revenue for the foreseeable future and the
loss of one or more of these customers or collaborative partners would harm our business and operating results; the statement regarding our belief that we are well positioned to capitalize on our
investment in the technology, instrumentation and informatics necessary to pursue high throughput discovery of materials; the statement regarding our belief that the drivers of our near term growth
and profitability, including the credibility and commitment afforded by our alliances, a visible improvement in chemical industry spending levels, the near-term growth potential of our
royalty income stream and the expansion of our software business, are already in place; the statement that Dow will make payments to us over the five-year term of approximately
$120 million; the statement regarding our expectations that approximately 40% of this revenue will be service revenue, 30% product revenue and 30% license revenue; the statement regarding our
expectations to receive royalties from the sale of polymers produced by Dow beginning in the first quarter of 2005; the statement regarding our expectations to receive royalties from the sale of
electronic materials containing polymers produced by JSR Corporation, beginning in the first quarter 2005; the statement regarding our anticipation of an effective income tax rate of approximately 40%
in 2005; the statement regarding our anticipation that our headcount will continue to increase to meet the mix and level staffing required by the ExxonMobil and Dow alliances and by the expansion of
our business; the statement regarding our expectation that we will continue to make significant investments in research and development to enhance our technologies; the statement regarding our
expectation to receive over $200 million in revenue from ExxonMobil and over $120 million in revenue from Dow during the 5-year term of each of the alliances; the

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statement regarding our belief that revenue from our strategic alliances will greatly contribute to our expected growth in Industry Collaborations revenue in 2005 through 2009; the statement regarding
our belief that expanding our customer base will contribute to our expected growth of Discovery Tools revenue; the statement regarding our belief that the demonstrated acceptance of our
high-throughput experimentation technology by our customers will lead to the expected growth in our license fee revenue in future years; the statement regarding our belief that
commercialized materials from Dow, JSR Corporation and Agfa, will contribute to our growth in Intellectual Property Licensing revenue in the future; the statement regarding our expectation to continue
to devote substantial resources to research and development; the statement regarding our expectation that research and development expenses will continue to increase; the statement regarding our
expectation that our sales, general and administrative expenses will increase; the
statement regarding our anticipation that our interest income in 2005 will be slightly greater than 2004 due to the impact of recent interest rate increases and our positive cash flows from operating
and financing activities will continue to increase our average investment balance; the statement regarding our anticipation that the adoption of certain accounting standards will not have a material
impact on our consolidated financial statements; the statement regarding our expectation that we will continue to generate positive cash flow from our operating activities in the near future; the
statement regarding our expectation to continue to make significant investments in the purchase of property and equipment to support our expanding operations; the statement regarding our belief that
our current cash, available-for-sale securities balances and the cash flows generated by operations will be sufficient to satisfy our anticipated cash needs; the statement
regarding our entry into an agreement to acquire Synthematix, Inc. which expects to close in early April 2005; the statement regarding management's belief that our insurance protection
is reasonable in view of the nature and scope of our operations; the statement regarding our expectation to retain future earnings, if any, to support the development of our business and that we do
not anticipate that we will pay any cash dividends in the foreseeable future.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statement. In order to comply with
the terms of the safe harbor, we note that a variety of factors could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in such
forward-looking statements. Among the factors that could cause actual results to differ materially are the factors detailed under the heading "Risk Factors." All forward-looking statements and risk
factors included in this document are made as of the filing date hereof, based on information available to Symyx as of the filing date hereof, and Symyx assumes no obligation to update any
forward-looking statement or risk factor. You should also consult the risk factors listed from time to time in the Company's Reports on Form 10-Q and other SEC
filings.

General

Symyx Technologies, Inc. (the "Company" or "Symyx") develops and applies high-throughput experimentation to the discovery of innovative
materials for chemical and petrochemical, pharmaceutical development, electronics, consumer goods, and automotive customers. We work together with companies seeking to transform their search for
better products and processes through research collaborations, Discovery Tools® sales, and the license of materials, intellectual property, and software.

Symyx®
was incorporated in California on September 20, 1994 and completed a reincorporation in the state of Delaware in February 1999. Symyx's headquarters and
mailing address is 3100 Central Expressway, Santa Clara, California, 95051, and the telephone number at that location is (408) 764-2000. Our SEC filings are available free of
charge through our website at www.symyx.com. Our Common Stock trades on the Nasdaq National Market under the symbol "SMMX."

In
November 2004, we completed the acquisition of Symyx IntelliChem, Inc. ("IntelliChem"), formerly IntelliChem, Inc., an Oregon-based leading provider of
intelligent electronic lab notebooks (iELN) for customers in the pharmaceutical, biotechnology, and chemical industries.

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We
are the pioneer of high-throughput materials discovery and have developed broad proprietary technologies and methodologies to increase research productivity for ourselves
and our customers. Through our innovation, we have built a comprehensive intellectual property portfolio of over 240 issued patents and over 390 patent applications covering methodology,
composition of matter, instrumentation, and software.

Our
diversified business model provides complementary ways for us to work with our customers and to further our innovation and growth. We perform research for our customers, sell high
throughput automated instruments called Discovery Tools, license our Renaissance® and IntelliChem® software, and license our discovered materials and some of our intellectual
property:



We
also work with customers in alliances, under which our customers work with us across all of our business offerings under a substantial, multi-year commitment. To date, we
have such alliances in place with the Exxon Mobil Corporation ("ExxonMobil") and the Dow Chemical Company ("Dow"). Under the ExxonMobil alliance effective April 1, 2003, we are contracted to
provide research services, develop and sell Discovery Tools Systems, and license our software and intellectual property. The ExxonMobil alliance provides us with an expected five-year
revenue stream of over $200 million (of which $59.6 million has been recognized as of December 31, 2004) from currently planned alliance activities, purchases of Discovery Tools
systems, and licensing fees. In addition, we are also entitled to receive royalties from the commercialization of materials, processes, and products based on discoveries made in the fields of
agreement. Under the Dow alliance effective January 1, 2005, we are contracted to perform research in a number of exclusive areas, develop and provide Symyx Discovery Tools, and license our
Renaissance suite of software as well as certain intellectual property. Dow is obligated to make payments to us over the five-year term of approximately $120 million. In addition,
we are entitled to receive royalties on commercialized discoveries resulting from the collaborative research.

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For
the fiscal years ended December 31, 2004, 2003, and 2002, the following customers contributed more than 10% of our total revenue (in thousands):

Years Ended December 31,2004

2003

2002Eli Lilly and Company

$
132

$
275

$
10,419ExxonMobil


45,016


21,945


12,136The Dow Chemical Company


4,420


4,350


8,650Merck


3,553


8,410


5,876Undisclosed Partner


2,427


6,657


6,706Total

$
55,548

$
41,637

$
43,787


For
the fiscal years ended December 31, 2004, 2003, and 2002, approximately 20%, 15%, 12% of our total revenue was generated from sales to customers located in foreign countries.

Industry Background

Materials and their diverse properties contribute in vital ways to many of the products in every day use. Examples include the catalysts used in the manufacture
of major chemicals, pharmaceuticals, plastics and rubbers, the plastics in many of our household and office goods, and luminescent materials in lighting and computer and television screens.

Traditional
materials discovery relies on an expensive and time-consuming process of trial and error: making one material; testing it; then making a different material;
testing it and so on. Traditional discovery methods are not fast enough to keep pace with today's growth expectations and the trend to shorter product life cycles.

We
believe that we can transform chemical and petrochemical, pharmaceutical, electronics, consumer goods, and automotive companies by discovering break-through new materials faster and
more cost-effectively than by using traditional methods. We can also transform how our customers perform research, by providing Discovery Tools, software, and patented methods that they
can apply to increase the research productivity of their own labs.

Symyx Solution

Our technologies include the rapid creation of large directed libraries of materials that are then synthesized and tested using our fully integrated
high-throughput primary and secondary screens. During primary screening, unconventional methods are used to carry out experiments in large phase space  chemicals,
temperatures, pressures, etc.  so that researchers can identify the smaller areas to focus on. During secondary screening, more experiments are carried out to make a more detailed
evaluation of the focused areas. In conventional terms, creating and testing a single material is considered one experiment. Using our miniaturized, automated technology to execute hundreds to
thousands of experiments at a time, our scientists can dramatically increase the probability of success and reduce the time and costs per experiment to discover new materials. For example, using
traditional trial and error methods, a team consisting of a chemist plus a technician could perform 500 to 1,000 experiments per year. In our labs, that same team could perform up to 50,000
experiments per year. As a result, our scientists would generate significantly more data, increase the possibility of successful discoveries within that timeframe, and reduce the associated costs per
experiment dramatically.

To
achieve these efficiencies, we require extensive capabilities in materials synthesis, screening, and data analysis. A particular challenge is the ability to screen materials for a
wide range of properties. For example, to discover a new catalyst, we need to screen how well it performs a specific chemical reaction,

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and
to discover a new polymer, we need to screen for physical and mechanical properties such as molecular weight and toughness.

As
the pioneer in high-throughput materials science, we found no existing technology capable of meeting our synthesis, screening, and data analysis requirements. To address
this challenge, we assembled a multi-disciplined team of people with expertise in the fields of inorganic, physical, polymer, and organic chemistries, physics, engineering, and software programming.
This team has successfully designed, built, and validated a powerful array of highly specialized proprietary instruments and software. Our scientists can synthesize a wide range of materials and
screen for properties including catalytic, chemical, physical, mechanical, electronic, and optical properties. In addition, we continue to expand our capabilities through the development of new
instruments and software and enhanced versions of existing systems.

Symyx Offerings

We are committed to retaining our position as a leading company using and supplying high-throughput technologies for the discovery of new materials
with commercially valuable properties. We have developed several complementary offerings in support of that objective, including Industry Collaborations, Discovery Tools, Software Licensing, and
Intellectual Property Licensing.

Industry Collaborations

Our Industry Collaborations program contributes greatly toward the development of our intellectual property, including patents covering methodology, composition
of matter, instrumentation, and software. In our Industry Collaborations, we perform research for customers typically in exclusive fields, for which we receive research funding and rights to
downstream royalties or other payments on materials we may discover.

We
provide the platform technologies and effort, and our partners acquire rights to develop and commercialize resulting materials within their defined field of license. Typically, we
enter into collaborative arrangements to discover materials that require considerable investment in product development and manufacturing, as well as extensive marketing efforts. Our collaborative
partners have already developed the infrastructure to support these requirements, and may therefore be in a strong position to commercialize our discoveries.

Much
of our collaborative research is focused on the chemicals industry, where we apply proprietary high-throughput technologies aimed at making break-through discoveries
leading to improved commercial processes and materials. Our technology innovations can help chemical companies address the rising costs and manufacturing challenges presented by low-cost
competing producers overseas. We are working with BP, Celanese, Dow, ExxonMobil, and other leading companies to discover catalysts for the manufacture of polyolefins and a variety of other commodity
chemicals. The range of new technologies developed in these research collaborations  including instruments, software, methods, and materials  results in a
growing portfolio of intellectual property that creates downstream value for Symyx.

We
receive funding from our collaborative partners typically through quarterly research payments. These payments are made over the term of the research contract, which is generally one
to five years. If a new material is discovered and commercialized, we typically receive rights to royalties or other payments.

Under
the typical collaborative arrangement, we own or control all inventions pertaining to high-throughput methodology conceived and reduced to practice in connection with
activities under the agreements and all know-how and intellectual property rights related thereto. Our collaborative partners typically receive exclusive rights in the defined field of
their collaborative agreement. The agreements are typically cancelable only in the event of breach by either party or for other defined, limited reasons.

We
do not track or allocate actual costs by collaboration or project, as the requirement from our collaborative partners is to staff the various projects on a
full-time-equivalent ("FTE") employee basis.

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Accordingly,
we track the assignment of these FTE's to each project over time. Based on the analysis of these FTE's, for the twelve months ended December 31, 2004, approximately 81% of the
Company's research effort, determined based on employee hours charged to a project, was on research for collaborative projects funded by our partners. The remaining 19% of research effort was on our
internally funded research and development. The focus of our internally funded programs in 2004 was largely on development of our proprietary sensor technology, on industrial polymer applications, and
the next generation of Discovery Tools. In 2003 and 2002 approximately 65% and 63%, respectively, of our research effort was for collaborative projects funded by our partners with approximately 35%
and 37%, respectively, being our internally funded research.

In
order to expand our technologies and grow our product pipeline, we intend to continue to enter into new collaborative arrangements, including alliances. As a result of these new
arrangements, and the conclusion of existing collaborations, our portfolio of collaborations will change over time. We expect that new collaborations will come from existing partners extending current
programs and undertaking new research initiatives as well as from new partners.

Discovery Tools

Through our Discovery Tools operation, we leverage the power of our inventions by selling automated instruments to pharmaceutical companies to speed and improve
preclinical testing of drug candidates, and to chemical and petrochemical companies for catalyst and other research. Our Discovery Tools may include high-throughput reactors, screening
systems, robots and analytical equipment, all integrated with our Renaissance software, a suite of software designed to facilitate the process of designing, executing, and evaluating chemical and
material research and development.

Companies
that purchase Discovery Tools systems from us are able to implement high-throughput technologies at a great time and cost savings compared to taking a license to
operate from us and then developing and building a system internally. These complete
Discovery Tools systems, aimed at accelerating research as well as product optimization and process development, enable scientists to increase their research productivity up to 100-fold.

We
primarily sell our Discovery Tools systems and workflows to pharmaceutical and chemical companies. Pharmaceutical companies use our instrumentation and workflows to automate and
improve pre-clinical research, including drug polymorph, solubility studies and process optimization. The systems we sell to pharmaceutical companies include pre-formulation
workflows, solubility workflows, high pressure, or HiP reactors, and Parallel Pressure Reactors, or PPR®. Chemical companies use our Discovery Tools systems and workflows to automate and
integrate their material discovery and research and development processes. The systems we sell to chemical companies include our PPR system, fixed bed reactors, and high-temperature rapid
GPC system, as well as a variety of workflows designed to test polymer physical properties.

Software Licensing

We license our Renaissance and IntelliChem software to enhance experiment design, laboratory automation, data capture, data analysis and visualization, and data
communication in high-throughput and traditional research environments. The Renaissance software suite is a highly integrated suite of software designed to facilitate the process of
designing, executing, and evaluating chemical and material research and development. Renaissance consists of several different software applications, each focused on users and specific to the actual
day-to-day tasks of laboratory research, all sharing a common environment for data storage  the Renaissance Application Server (RAS). IntelliChem software
has been integrated into our software offering as a result of our acquisition of IntelliChem in November 2004. It provides a powerful and flexible set of intelligent electronic lab notebooks
for recording, utilizing, and managing the knowledge generated in laboratories. It allows pharmaceutical and chemical companies to replace paper

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lab
notebooks with intelligent electronic lab notebooks and provides decision-support tools to help scientists and engineers make better decisions.

Customers
for our software include chemical, petrochemical, and pharmaceutical customers, as well as other industrial customers seeking to improve and integrate their research data
management. Chemical, petrochemical and other industrial companies may use our software broadly across their research groups. Our Renaissance software is useful to pharmaceutical companies to support
their pre-clinical research activities. IntelliChem electronic laboratory notebook software is used by several pharmaceutical customers, mostly for pre-clinical research
although it also has utility in pharmaceutical discovery research and chemicals research.

Intellectual Property Licensing

Discovered Materials

We discover and patent a range of materials in our Industry Collaborations and internal research programs. These discovered materials provide the foundation for
our potential future royalties.

Our
portfolio of discovered materials provides us with an array of licensing opportunities, and offers a significant path to commercialization of new materials. Our discoveries
demonstrate the ability of our high-throughput research technologies to address a range of materials for use in a variety of chemical and other industrial applications. As a result, we
have created a growing pipeline of materials that have emerged from our discovery platform. At the time of this filing, our discoveries include 3 commercialized materials, 12 development candidates
and 12 emerging development candidates.

Sensors

We have developed a solid-state mechanical resonator ("sensor") technology for use in our own labs to test polymer viscosity, density, and other properties. We
have determined that these sensors have many potential applications outside of the lab, and we began an active program to license these sensors to industrial companies. The first announced sensor
license was to Hella KG, a leading supplier to the automotive industry. Hella KG is now beginning to commercialize this novel sensor technology for in-situreal-time monitoring of motor oil quality in
automobiles. Our sensors and technologies are also licensed and in
development at other companies, including an oil exploration company and Univation, for use in monitoring Unipol reactors. We expect to receive royalties from the sale of these sensors, or, in some
cases, we could become a supplier of the sensors themselves.

Patents

Launched in mid-2002, our patent licensing program leverages our established capabilities in the field of high-throughput materials
discovery, including our broad-based research capabilities, validated instruments and software, and extensive know-how.
Created to give companies selective access to our broad methodology patents, this program offers a constructive way to uphold the value of our intellectual property portfolio while expanding the ways
in which we can work with potential customers.

We
developed our patent licensing program to accommodate companies that want to implement high-throughput materials research on a smaller scale  generally
increasing their research productivity by approximately 10-fold. Because our patent licenses typically are for a limited number of experiments or for a limited number of scientists' use,
this licensing approach complements our other business offerings by targeting research programs that are generally too small to warrant investment in Industry Collaborations or Discovery Tools. In
this manner, companies can benefit from our inventions by licensing our patents and patent applications for a fee.

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Technology

Our scientists begin the discovery process by working with our collaborative partners or our own business development staff to define a research objective in
terms of the specific properties a new material should have to meet the needs of a given application. We then apply the components of our combinatorial process  synthesis,
screening and informatics  to seek to discover materials that match these criteria.

Synthesis

The materials research process begins with chemists' theories about what elements from the periodic table of elements might be combined to create new materials
with desired properties. However, while chemists working in traditional labs have to choose the few experiments they will perform on a given day, our chemists have the ability to perform hundreds or
thousands of experiments during the same time frame. Our chemists are therefore able to pursue their theories both broadly, across a wide range of elements, and comprehensively, creating materials
with the same components, in different ratios.

A
Symyx chemist initiates the synthesis process by using our Renaissance software suite's Library Studio® software application, a computer software package created by our
programmers to design the group, or "library," of materials to be synthesized. These instructions, or "recipes," are then relayed to synthesis instruments automated with our Renaissance software
suite's Impressionist® or Epoch® software applications, each being computer
software packages that direct automated equipment functions. These instruments create the library on a single substrate such as a three-inch diameter silicon wafer or a 96-well
plate. The quantity of each compound synthesized is very small, generally ranging from micrograms to hundreds of milligrams. This contrasts dramatically with traditional synthesis, where grams to
kilogram quantities of a material are usually necessary. Libraries synthesized on silicon wafers may range from a few hundred different candidate materials to several thousand, depending on the type
of material and the type of analysis to be done.

Each
material synthesized represents a unique experiment and potential discovery. The desired end result of these experiments is defined at the outset of the experiment as a target
material having specific performance properties. Our scientists, in conjunction with our collaborative partners, or independently for our proprietary discovery programs, set the specific performance
properties and define the desired performance attributes of the target material for a given application or applications. Generally, these criteria are well beyond the performance attributes of
currently used materials.

Screening

Once created, the library of materials is analyzed for desired properties. As with synthesis, our technical staff has designed and built a broad array of
instruments and software to evaluate different properties under a wide variety of process conditions. These properties include catalytic, physical, mechanical, thermal, chemical, electronic, and
optical properties. In general, a Symyx chemist can design, synthesize, and screen a library in a single day.

To
reach the point of commercialization, a candidate material must progress through an increasingly stringent set of requirements, progressing from a hit to a lead to a development
candidate. First, we screen materials to identify those materials that have a limited set of properties defined for the target discovery, called "hits." Hits are subjected to additional testing and
optimization, to find a larger number of desired properties. Hits may also identify areas that merit further exploration, and new libraries are created using this information. Candidate materials that
continue to meet or exceed the defined criteria are then classified as "leads." Leads are then transferred to a partner or processed internally for additional testing and scale up. Leads are tested on
a larger scale, as bulk samples of, e.g. 1 to 100 grams, to confirm that the materials still perform at this "bench scale" level. Once a lead has passed this bench scale testing by either a
collaborative partner or us, it may become a development candidate. Finally, if all is successful, the decision may be made to commercialize the material. Once a material has been identified as a

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development
candidate, the time to the first sale or commercial usage may be as short as one to two years. For industrial catalysts to produce high volume commodity chemicals, on the other hand, it
may require five to seven or more years to reach the market because of the extensive process development, customer evaluation, and capital investment involved.

Informatics

A critical factor in our discovery process is the ability to retain and access the huge amounts of data generated by our synthesis and screening activities. Given
the broad acceptance of high-throughput combinatorial discovery in pharmaceuticals, a number of software applications exist to support organic chemistry. However, those software
applications were not sufficient to address the storage and retrieval needs of our diverse array of inorganic, organometallic, and polymer chemistries. To that end, we have devoted considerable
resources to build a proprietary database capable of addressing these needs. Our chemists can query this database to identify materials screened in the past that possess the property or properties
specified. We believe that this database will emerge as a powerful tool in accelerating materials discovery by enabling our scientists to benefit from the cumulative effect of all of our research.

Intellectual Property and Other Proprietary Rights

Our success depends upon our proprietary technology. The risks associated with patents and intellectual property are more fully discussed in the "Risk Factors"
section contained in Item 1 of this Annual Report on Form 10-K. There are five general areas that may be patented using our high-throughput approach:



During
2004, we were issued 75 patents worldwide. Our patent portfolio as of year end 2004 consisted of 235 issued patents, including 198 U.S. patents, 18 European
patents, and 19 patents in other countries, and more than 390 patent applications pending worldwide. These patents and applications cover composition of matter, instruments, and
methodology, and include issued patents with broad claims in high-throughput combinatorial methodologies. We co-own with Lawrence Berkeley National Laboratory, on behalf of The
Regents of the University of California, 10 of the issued United States patents and 6 of the issued patents in other countries. We have an exclusive license to these patents and patent applications
from Lawrence Berkeley National Laboratory, which was agreed to upon our formation. In addition to patents, we rely on copyright, trademark and trade secret rights, confidentiality procedures, and
licensing arrangements to establish and protect our proprietary rights.

Markets

Symyx provides chemical and petrochemical, pharmaceutical development, electronics, consumer goods, and automotive customers with materials and chemical solutions
to increase their research and development productivity by achieving better results with shorter timelines and lower costs. We realize value through collaborative research, the sale of Discovery
Tools, and the license of intellectual property, software, and materials. Our market opportunities fall into two primary areas: our customers' research and development expenditures and the market for
sales of materials.

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Research and Development ("R&D") Expenditures Market

Our customers in the various industries we serve have an aggregate R&D expenditure in excess of $10 billion annually and need to achieve an increased
return on their R&D investments. These investments include personnel costs in basic research and discovery, purchases of instruments, workflows and tools, and deployment of supporting informatics and
software environments.

Material Markets

The materials we discover cover a broad range of applications, including catalysts for the manufacture of plastics and commodity chemicals, polymers for
industrial, consumer goods and life science applications, and diverse electronic materials. Each of these materials typically may generate annual worldwide sales for our customers in the range of
$100 million to $500 million.

Competition

We are aware of some chemical companies with internal high-throughput materials discovery programs. In addition, two European based companies,
Avantium Technologies and HTE, may also use high-throughput approaches to materials discovery. Furthermore, certain instrument manufacturers, including Chemspeed, Zinsser, and others,
offer instruments that may compete with our Discovery Tools business. Because high-throughput materials experimentation is an emerging field, competition for our Industry Collaborations
and Discovery Tools businesses could increase. In addition, other companies may be addressing the same materials targets as we do and would represent competition for our discovered materials.

Backlog of Committed Revenue

As of December 31, 2004, our customers have contractually committed approximately $83 million for the purchase of Discovery Tools systems, licenses
to our intellectual property, and funding for research and development under collaborative agreements in 2005. We also have an additional $226 million in revenue backlog expected to be realized
in fiscal 2006 and beyond. We intend to augment the already committed revenue base with new and extended collaborations, new tools sales, and new intellectual property and software licenses.

Employees

As of December 31, 2004, we had a total of 275 employees, including 189 scientific and technical employees and 86 people in business development, legal,
and general and administrative services. Our headcount increased significantly during 2004 because of the acquisition of IntelliChem in November 2004 and hiring of scientific and technical
employees to fulfill the needs under our Exxon alliance entered into in 2003 and our Dow alliance entered into in 2004. The headcount has not changed significantly after the end of fiscal 2004 to date
but is expected to continue to grow in 2005. None of our employees are represented by a labor union, and we consider our employee relations to be good. We believe that our future success depends in
part upon our continued ability to hire and retain qualified personnel.

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Executive Officers of the Registrant

Set forth below is information regarding our executive officers as of February 24, 2005:

Name of Executive Officer

Age

Position with the CompanySteven D. Goldby(1)

64

Chairman of the Board and Chief Executive OfficerIsy Goldwasser(2)

35

PresidentJeryl L. Hilleman(3)

47

Executive Vice President and Chief Financial OfficerPaul Nowak(4)

50

Executive Vice President and Chief Operating OfficerW. Henry Weinberg(5)

60

Executive Vice President and Chief Technical Officer


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There
is no family relationship between any of the foregoing executive officers or between any of such executive officers and any of the members of our Board of Directors. Our executive
officers serve at the discretion of the Board.

Environmental Matters

Our U.S. operations are subject to federal, state, and local environmental laws and regulations. We have a number of proactive programs underway to minimize our
impact on the environment, and we believe that we are in substantial compliance with environmental laws and regulations.

Risk Factors

Set forth below and elsewhere in this Annual Report on Form 10-K and in other documents we file with the SEC are risks and uncertainties that
could cause actual results to differ materially from the results

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contemplated
by the forward-looking statements contained in this Annual Report on Form 10-K. These are not the only risks and uncertainties facing us. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Most of our revenue is generated from a small number of key customers and the loss of a key customer could substantially reduce our revenues and be
perceived as a loss of momentum in our business

Over time we have expanded our base of customers and collaborative partners, however, substantial portions of our revenues are generated from a small number of
companies. In particular, ExxonMobil accounted for 54% of our total revenue for the year ended December 31, 2004. Our largest three customers accounted for 64% of our total revenue in 2004. We
expect that ExxonMobil, Dow, and a select list of other companies will in aggregate continue to account for a substantial portion of our revenues for the foreseeable future and the loss of one or more
of these customers or collaborative partners would harm our business and operating results. The cancellation of the ExxonMobil or Dow strategic alliance or loss of another significant customer or
collaborative partner could also be perceived as a loss of momentum in our business and an adverse impact on our financial results and this may cause the market price of our common stock to fall.

We may not be able to maintain and grow a profitable business

Our ability to maintain or increase our rate of profitability and grow our business is dependent on our ability to:



Our
ability to achieve our objectives and maintain or increase the profitability of our business will depend in large part on acceptance by potential customers of our
high-throughput screening technology and methodology as an effective tool in the discovery of new materials. Historically, pharmaceutical and chemical companies have conducted materials
research and discovery activities internally using traditional manual discovery methods. In order for us to achieve our business objectives, we must convince these companies that our technology and
capabilities justify outsourcing part of their basic research and discovery programs. We cannot assure you that we will achieve the levels of customer acceptance that will be necessary for us to
maintain and grow a profitable business. A failure to achieve the necessary customer acceptance and extend current collaborations and add new ones, secure new Discovery Tools customers, and add
additional licensees of our software and intellectual property would adversely affect our revenue and profitability and may cause our stock price to decrease.

Failure to successfully commercialize our discoveries would reduce our revenues and profitability and harm our business

For us to achieve and sustain a significant level of profitability, we must make discoveries with significant commercial potential.

If
we license our discovered materials or methodologies to other companies, we typically do not receive royalties on sales of products by our partners until they have commenced
commercial sales of products containing our materials or produced using our methods. The failure of our partners to commercialize development candidates resulting from our research efforts would
reduce our future revenue and would harm our business and operating results.

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In
order for us to commercialize development candidates ourselves, we would need to develop, or obtain through outsourcing arrangements, the capability to manufacture, market, and sell
products. We do not have this capability, and we may not be able to develop or otherwise obtain the requisite manufacturing, marketing, and sales capabilities. If we are unable to successfully
commercialize products resulting from our proprietary research efforts, our revenues and operating results would decline.

We are dependent on the research and development activities of companies in the chemical and petrochemical, pharmaceutical, electronics, consumer goods,
and automotive industries, and declines or reductions in research and development activities in these industries could harm our business

The market for our discovery services and instrumentation within the chemical and petrochemical, pharmaceutical, electronics, consumer goods, and automotive
industries depends on our customers' ability and willingness to invest in research and development. A majority of our revenues are attributable to our collaborative arrangements with chemical,
pharmaceutical, electronics, consumer goods, and automotive companies. These contracts generally expire after a fixed period of time. If we cannot renew existing contracts or enter into new
collaborative arrangements, our business and operating results may be harmed.

In
particular, many companies in the chemical and pharmaceutical industries have, in the past several years, experienced declining profitability or even losses. As a result, some
chemical and pharmaceutical companies have reduced their research and development activities. In addition, many chemical products have become commodity products that compete primarily on the basis of
price. If commoditization of chemical products and other pressures affecting the industry continue in the future, more companies could adopt strategies that involve significant reductions in their
research and development programs. Although we believe that our approach can help chemical and petrochemical, pharmaceutical, electronics, consumer goods, and automotive companies increase the
efficiency of their research and development activities, our efforts to convince them of this value may be unsuccessful. To the extent that these companies reduce their research and development
activities, they would be less likely to do business with us. As a result of current negative economic conditions, a number of these companies have recently both reduced the size of their research and
development budgets as well as the size of their workforces. Decisions by these companies to reduce their research and development activities could result in fewer or smaller scale collaborations with
us, fewer or smaller scale intellectual property and software licenses, fewer sales of our Discovery Tools systems and related licenses and products, or choosing not to work with Symyx, any of which
could reduce our revenues and harm our business and operating results.

We cannot predict the pace, quality or number of discoveries we may generate, and any inability of ours to generate a significant number of discoveries
would reduce our revenues and harm our business

Our future revenues and profitability are dependent upon our ability to achieve discoveries, whether through collaborations with customers or through our own
proprietary research, which our partners or we choose to commercialize. Because of the inherently uncertain nature of research activities, we cannot predict with a high level of precision the pace
with which we may generate discoveries or the quality of any discoveries that we may generate. Due to the uncertain nature of materials discovery, in which several hundred thousand compounds must
often be screened to identify a single development candidate, we may not generate the number of discoveries that we would expect to generate from a given number of experiments, or any discoveries at
all. In addition, our development candidates may not result in products having the commercial potential our collaborators or we anticipate. If this happens, our existing and potential new customers
may not renew or enter into new agreements with us. Consequently, our future revenues from our research collaborations and from commercialization of our discovered materials would likely decline and
harm our business and operating results.

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Business activities such as the development of a new line of business or the acquisition of a company or technology could disrupt our business, affect
our operating results and distract our management team

We have recently engaged in an acquisition, and in the future, we may engage in additional acquisitions and expand our business focus in order to exploit
technology or market opportunities. In the event of any future acquisitions, we may issue stock that would dilute our current stockholders' percentage ownership, pay cash, incur debts, or assume
liabilities. We may not be able to successfully integrate any acquired business into our existing business in a timely and non-disruptive manner or at all. In addition, acquisitions may
adversely affect our operating results and could result in, among other things, large one-time charges associated with acquired in-process research and development, future
write-offs of goodwill that is deemed to be impaired, restructuring charges related to consolidation of operations, charges associated with unknown or unforeseen liabilities of acquired
businesses, increased general and administrative expenses, and the loss of key employees. In the event that we develop a new line of business, our management's attention may be diverted from normal
daily operations of the business. Furthermore, an acquisition or business expansion may not produce the revenues, earnings or business synergies that we anticipate. The time, capital management and
other resources spent on an acquisition or business expansion that fails to meet our expectations could cause our business and financial condition to be materially and adversely affected.

Difficulties we may encounter managing our growth may divert resources and limit our ability to successfully expand our operations

We have experienced a period of rapid and substantial growth that has placed, and our anticipated growth in the future will continue to place, a strain on our
research, administrative, and operational infrastructure. As our operations expand domestically and internationally, we will need to continue to manage multiple locations and additional relationships
with various collaborative partners, suppliers, and other third parties. Our ability to manage our operations and growth effectively requires us to continue to improve our reporting systems and
procedures as well as our operational, financial and management controls. In addition, recent SEC rules and regulations have increased the internal control and regulatory requirements under which we
operate. We may not be able to successfully implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems
and controls.

We conduct research programs for our own account and for a number of collaborative partners, and any conflicts between these programs would harm our
business

Our strategy includes conducting research programs for our own account as well as for collaborative partners. We believe that our collaborative agreements are
structured in a manner to enable us to minimize conflicts with our collaborators relating to rights to potentially overlapping leads developed through programs for our own account and through programs
funded by a collaborator, or through programs funded by different collaborators. However, conflicts between a collaborator and us, or between collaborators, could potentially arise. In this event, we
may become involved in a dispute with our collaborators regarding the material. Disputes of this nature could harm the relationship between us and our collaborators, and concerns regarding our
proprietary research programs could also affect our ability to enter into new collaborative relationships and cause our revenues and operating results to decline.

We have a limited number of contracts for the sale of Discovery Tools systems and for the licensing of intellectual property, software, technologies,
and materials to date, and we cannot assure you that we will be able to build a sustainable business related to either the sale of additional systems or the licensing of intellectual property,
software, technologies, and materials

To date, we have a limited number of contracts for our Discovery Tools systems. Because of the high cost and complexity of these systems, the sales cycle for them
has been and is likely to continue to be long.

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Sales
of these systems will require us to educate our potential customers about the full benefits of these systems, which may require significant time.

Sales
of Discovery Tools systems and licensing of intellectual property, software, technologies, and materials will be subject to a number of significant risks over which we have little
or no control, including:



If
we are unable to continue to build the infrastructure to support Discovery Tools and intellectual property and software licensing, or if the sales or build cycles for Discovery Tools
systems lengthen unexpectedly, our revenues may decline or not grow as anticipated and our results from operations may be harmed.

The loss of key personnel or the inability to attract and retain additional personnel could have a material adverse effect on our results of operations

We believe our future success will depend upon our ability to attract and retain highly skilled personnel, including key scientific and managerial personnel. As
we seek to expand our operations, the hiring of qualified scientific and technical personnel will be difficult, as the number of people with experience in high-throughput materials science
is limited and we may face competition for qualified professionals, especially in the San Francisco Bay Area, where we are headquartered. Further, as we form new alliances with other collaboration
partners, we may need personnel with specific skill sets that may be difficult to locate or attract. Failure to attract and retain personnel, particularly scientific and technical personnel, would
impair our ability to grow our business and pursue new discovery initiatives and collaborative arrangements.

Competition could increase, and competitive developments could render our technologies obsolete or noncompetitive, which would reduce our revenues and
harm our business

The field of high-throughput materials science is increasingly competitive. We are aware of companies that may apply their expertise in
high-throughput chemistry to their internal materials research and development programs. In addition, there are companies focusing on aspects of high-throughput chemistry for
the discovery of materials. In addition, academic and research institutions may seek to develop technologies that would be competitive with our technologies for materials discovery. Because
high-throughput materials science is an emerging field, competition from additional entrants may increase. Our Discovery Tools and software business groups are facing increasing
competition from a number of instrument manufacturing and software companies. To the extent these companies develop competing technologies, our own technologies, methodologies, systems and workflows,
and software could be

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rendered
obsolete or noncompetitive. We would then experience a decline in our revenues and operating results.

Our inability to adequately protect our proprietary technologies could harm our competitive position and have a material adverse effect on our business

The success of our business depends, in part, on our ability to obtain patents and maintain adequate protection of our intellectual property for our technologies
and products in the U.S. and other countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered
significant problems in protecting their proprietary rights in these foreign countries. These problems can be caused by, for example, a lack of rules and processes allowing for meaningfully defending
intellectual property rights. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies and erode our competitive advantage, and our business and
operating results could be harmed.

The
patent positions of technology companies, including our patent positions, are often uncertain and involve complex legal and factual questions. We will be able to protect our
proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade
secrets. We apply for patents covering our technologies and products as we deem appropriate. However, we may not obtain patents on all inventions for which we seek patents, and any patents we obtain
may be challenged and may be narrowed in scope or extinguished as a result of such challenges. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies or design around our patented technologies or products.
These companies would then be
able to offer research services and develop, manufacture and sell products that compete directly with our research services and products. In that case, our revenues and operating results would
decline.

We
rely upon trade secret protection for certain of our confidential information. We have taken measures to protect our confidential information. These measures may not provide adequate
protection for our trade secrets or other confidential information. We seek to protect our confidential information by entering into confidentiality agreements with employees, collaborators, and
consultants. Nevertheless, employees, collaborators or consultants may still disclose or misuse our confidential information, and we may not be able to meaningfully protect our trade secrets. In
addition, others may independently develop substantially equivalent information or techniques or otherwise gain access to our trade secrets. Disclosure or misuse of our confidential information would
harm our competitive position and could cause our revenues and operating results to decline.

Failure to adequately enforce our intellectual property rights could harm our competitive position and have a material adverse effect on our business

Our success depends on our ability to enforce our intellectual property rights through either litigation or licensing. To be successful in enforcing our
intellectual property through litigation or licensing there are several aspects to consider, including maintaining the validity of our intellectual property, proving that others are infringing and
obtaining a commercially significant outcome as a result of such infringement. Intellectual property litigation can be successful if our intellectual property withstands close scrutiny. If it does not
withstand this scrutiny, we can lose part or all of our intellectual property position. In addition, we are involved in several administrative proceedings, such as opposition proceedings in the
European Patent Office, that challenge the validity of the patents we have obtained there. If we lose part or all of our intellectual property position, whether through litigation or opposition
proceedings, our business and operating results may be harmed.

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With
regard to proving infringement of our intellectual property, our success depends in part on obtaining useable knowledge of what technologies others are practicing. If others do not
publish or disclose the technologies that they are using, our ability to discover infringing uses and enforce our intellectual property rights will diminish. If we are unable to enforce our
intellectual property rights or if the ability to enforce such rights diminishes, our revenues from intellectual property licensing and our operating results may decline.

Our
intellectual property must protect our overall business structure by allowing us to obtain commercially significant results from litigation, including compensation and/or relevant
injunctions, without resulting in undue cost and expense. Enforcement of our intellectual property through litigation can result in significant expenses, distractions and risks that might cause us to
lose focus or may
otherwise harm our profitability and weaken our intellectual property position. Enforcement proceedings can adversely affect our intellectual property while causing us to spend resources on the
enforcement proceedings. As our licensing activities have matured, we have become involved in arbitration and litigation to assert and defend our intellectual property. These matters may become
material and more such matters may arise. Successful conclusion of these matters will assist our business, while unsuccessful conclusion of these matters will cost us time and money and possibly loss
of rights. Our ability to manage the costs of these proceedings to obtain a successful result cannot be predicted.

Our business may be harmed if we are found to infringe proprietary rights of others

Our commercial success also depends in part on ensuring we do not infringe patents or other proprietary rights of third parties. Others have filed, and in the
future are likely to file, patent applications covering technologies that we may wish to utilize with our proprietary technologies, or products that are similar to products developed with the use of
our technologies. If these patent applications result in issued patents and we wish to use the claimed technology, we would need to obtain a license from the third party and this would increase our
costs of operations and harm our operating results.

Third
parties may assert that we are employing their proprietary technology without authorization. In addition, third parties may obtain patents in the future and claim that use of our
technologies infringes these patents. We could incur substantial costs and diversion of the time and attention of management and technical personnel in defending ourselves against any such claims.
Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to further develop, commercialize, and sell products,
and such claims could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more
licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter delays in product introductions while we attempt to develop
alternative methods or products, or be required to cease commercializing affected products, which would harm our operating results.

We depend on a limited number of suppliers and will be delayed in our manufacture or unable to manufacture our Discovery Tools if shipments from these
suppliers are delayed or interrupted

Key parts of our Discovery Tools systems are currently available only from a single source or a limited number of sources. In addition, components of our capital
equipment are available from one or only a few suppliers. In the event that supplies from these vendors are delayed or interrupted for any reason, we may not be able to get equipment or components for
Discovery Tools systems or our own research efforts in a timely fashion or in sufficient quantities or under acceptable terms.

Even
if alternative sources of supply are available, it could be time-consuming and expensive for us to qualify new vendors and integrate their components into our Discovery
Tools systems. In addition, we are dependent on our vendors to provide components of appropriate quality and reliability. Consequently, in the event that supplies from these vendors were delayed or
interrupted for any reason, we could be delayed in our ability to develop and deliver products.

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We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses

Our quarterly operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to fluctuate
significantly or decline. Revenues in future fiscal periods may be greater or less than revenues in the immediately preceding period or in the comparable period of the prior year. Some of the factors
that could cause our operating results to fluctuate include:



A
large portion of our expenses, including expenses for facilities, equipment, and personnel, are relatively fixed in nature. Accordingly, in the event revenues decline or do not grow as
anticipated due to expiration of research contracts, failure to obtain new contracts or other factors, we may not be able to correspondingly reduce our operating expenses. Failure to achieve
anticipated levels of revenues could therefore significantly harm our operating results.

Due
to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. As a result of these possible fluctuations, it is difficult for our management to predict or estimate our quarterly or annual operating results and to give
accurate guidance. Our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price would probably decline, and investors
would experience a decline in the value of their investment.

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Our stock price has been and may continue to be volatile

The market price of our common stock since our initial public offering has been highly volatile. Volatility in the market price for our common stock will be
affected by a number of factors, including the following:



These
factors and fluctuations, as well as general economic, political, and market conditions, may materially adversely affect the market price of our common stock. Securities class
action litigation is often brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities
litigation, whether with or without merit, could result in substantial costs and divert management's attention and resources, which could harm our business and financial condition, as well as the
market price of our common stock. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted
stock options.

Our investments could lose market value and consequently harm our ability to fund continuing operations

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash equivalents, short-term and long-term investments in a variety of securities, including government and corporate
obligations and money market funds. These securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of estimated tax. The market values of these investments may fluctuate due to market
conditions and other conditions over which we have no control. Fluctuations in the market price and valuations of these securities may require us to record losses due to impairment in the value of the
securities underlying our investment. This could result in future charges on our earnings. All securities are held in U.S. currency.

Investments
in both fixed rate and floating rate interest earning instruments carry varying degrees of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. In general, securities with longer maturities are subject to greater interest rate risk than those with shorter maturities. Although floating rate
securities generally are subject to less interest rate risk than fixed rate securities, floating rate securities may produce less income than expected if interest

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rates
decrease. Due in part to these factors, our investment income may fall short of expectations or we may suffer losses in principal if securities are sold that have declined in market value due to
changes in interest rates.

Changes in accounting standards regarding stock option plans could limit the desirability of granting stock options, which could harm our ability to
attract and retain employees, and will also reduce our profitability

The Financial Accounting Standards Board issued SFAS No. 123(R) which we are required to adopt no later than July 1, 2005. This statement will
require us to treat the value of stock options granted to employees as an expense. When we are required to expense stock option grants, it will reduce the attractiveness of granting stock options
because the additional expense associated with these grants will reduce our profitability. However, stock options are an important employee recruitment and retention tool, and we may not be able to
attract and retain key personnel if we reduce the scope of our employee stock option program. Accordingly, once we are required to expense stock option grants, our profitability will be reduced. We
may need to reevaluate the use of stock options as an employee recruitment and retention tool.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and stock price

Each year we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our Independent Registered Public Accounting Firm addressing
these assessments. During the course of our testing we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with
the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to
achieve and maintain an effective internal control environment could have a material adverse effect on our stock price.

If our products contain software defects, it could harm our revenues and expose us to litigation

The software products we offer are internally complex and, despite extensive testing and quality control, may contain errors or defects, especially when we first
introduce them. We may need to issue corrective releases of our software products to fix any defects or errors. Any defects or errors could also cause damage to our reputation and result in loss of
revenues, product returns or order cancellations, or lack of market acceptance of our products. Accordingly, any defects or errors could have a material and adverse effect on our business, results of
operations and financial condition.

Our
license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in our license agreements may not be effective as a result of existing or future federal, state or local laws or ordinances or unfavorable judicial decisions.
Although we have not experienced any product liability claims to date, sale and support of our products entails the risk of such claims, which could be substantial in light of our customers' use of
such products in mission-critical applications. If a claimant brings a product liability claim against us, it could have a material adverse effect on our business, results of operations and financial
condition. Our products interoperate with many parts of complicated computer systems, such as mainframes, servers, personal computers, application software, databases, operating systems and data
transformation software. Failure of any one of these parts could cause all or large parts of computer systems to fail. In such circumstances, it may be difficult to determine which part failed, and it
is

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likely
that customers will bring a lawsuit against several suppliers. Even if our software is not at fault, we could suffer material expense and material diversion of management time in defending any
such lawsuits.

We are exposed to general global economic and market conditions

Our business is subject to the effects of general economic conditions in the United States, Europe, Asia, and globally, and, in particular, market conditions in
the pharmaceutical and chemical industries. In recent quarters, our ability to conclude Discovery Tools sale agreements and research and development collaborative arrangements have been adversely
affected as a result of unfavorable economic conditions and reduced capital spending in the United States, Europe, and Asia. If the economic conditions in the United States and globally do not
improve, or if we experience a worsening in the global economic slowdown, we may experience material adverse impacts on our business, operating results, and financial condition.

We are exposed to risks associated with export sales and operations that may limit our ability to generate revenue from our products and intellectual
property

We have recently established operations in certain parts of Europe and Asia. We intend to continue to expand our international presence in order to increase our
export sales. Export sales to international customers and operating in foreign countries entail a number of risks, including:



We
are also subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, terrorism, potential hostilities,
changes in diplomatic and trade relationships, and disease outbreaks. Although we have not to date experienced any material adverse effect on our operations as a result of such regulatory,
geopolitical and other factors, we cannot assure investors that such factors will not have a material adverse effect on our business, financial condition and operating results or require us to modify
our current business practices.

Any inability of ours to keep pace with technological advances and evolving industry standards would harm our business

The market for our products is characterized by continuing technological development, evolving industry standards and changing customer requirements. Due to
increasing competition in our field, it is likely that the pace of innovation and technological change will increase. Our success depends upon our ability to enhance existing products and services and
to respond to changing customer requirements. Failure to develop and introduce new products and services, or enhancements to existing products, in a

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timely
manner in response to changing market conditions, industry standards or other customer requirements would harm our future revenues and our business and operating results.

We use hazardous materials in our business, and any claims relating to improper handling, storage or disposal of these materials could subject us to
significant liabilities

Our business involves the use of a broad range of hazardous chemicals and materials. Environmental laws impose stringent civil and criminal penalties for improper
handling, disposal and storage of these materials. In addition, in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials, we could be subject to civil
damages due to personal injury or property damage caused by the release or exposure. A failure to comply with environmental laws could result in fines and the revocation of environmental permits,
which could prevent us from conducting our business. Accordingly, any violation of environmental laws or failure to properly handle, store or dispose of hazardous materials could result in
restrictions on our ability to operate our business and could require us to incur potentially significant costs for personal injuries, property damage and environmental cleanup and remediation.

Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other disaster could cause damage to our facilities
and equipment and harm our business

Our facilities are located in the Silicon Valley near known earthquake fault zones and are vulnerable to damage from earthquakes. In October 1989, a major
earthquake that caused significant property damage and a number of fatalities struck this area. We are also vulnerable to damage from other types of disasters, including fire, floods, power outages or
losses, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities would be seriously, or potentially completely, impaired. In
addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from a disaster. We do not carry earthquake
insurance on the property that we own and the insurance we do maintain may not be adequate to cover our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or
other disaster could harm our business and operating results.

Some of our existing stockholders can exert control over us, and may not make decisions that are in the best interests of all stockholders

Our officers, directors and principal stockholders (greater than 5% stockholders) together control approximately 36% of our outstanding common stock. As a result,
these stockholders, if they act together, will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of Symyx and might affect
the market price of our common stock, even when such a change may be in the best interests of all stockholders.

Provisions of our charter documents may have anti-takeover effects that could prevent a change in our control, even if this would be
beneficial to stockholders

Provisions of our amended and restated certificate of incorporation, bylaws and Delaware law could make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. These provisions include:



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These
provisions can be amended only with the vote of the holders of 662/3% of our outstanding capital stock.

Item 2.Properties

Our facilities currently consist of an aggregate of approximately 113,000 square feet of office, research, and laboratory space in several locations in
California, New Jersey, Oregon, and other states and countries. We own the 39,000 square foot building at 3100 Central Expressway, Santa Clara, California and lease the remaining office spaces under
lease agreements that expire from April 2006 to September 2010.

Item 3.Legal Proceedings

We are currently not a party to any legal proceedings that we believe to be material.

We
may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable,
management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

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

None

23

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PART II

Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities

Our common stock is traded on the Nasdaq National Market System under the symbol of "SMMX." The following table sets forth, for the period indicated, the low and
high bid prices per share for our common stock as reported by the Nasdaq National Market.

Low

High2003First Quarter

$
11.57

$
15.53Second Quarter

$
14.38

$
18.01Third Quarter

$
16.00

$
25.63Fourth Quarter

$
17.50

$
23.502004First Quarter

$
20.61

$
29.95Second Quarter

$
22.40

$
30.22Third Quarter

$
16.51

$
24.26Fourth Quarter

$
22.05

$
32.20


As
of February 24, 2005, there were approximately 150 holders of record of our common stock.

No
dividends have been paid on our common stock since our inception and we currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying
any cash dividends in the foreseeable future.

We
have not repurchased any of our common stock during the year ended December 31, 2004.

Equity Compensation Plan Information

The following table provides information as of December 31, 2004 with respect to our shares of common stock that may be issued under our existing equity
compensation plans.

|Plan Category                                             |       | A
Number of Securities to
Be Issued Upon
Exercise of Outstanding
Options |           | B
Weighted Average
Exercise Price of
Outstanding
Options |       | C
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column A) |          
|--------------------------------------------------------- | ----- | ------------------------------------------------------------------------ | --------- | -------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity Compensation Plans
Approved by Stockholders(1)     |       | 7,004,759                                                                | (3)       | $                                                        | 24.73 |                                                                                                                                             | 1,872,430
|Equity Compensation Plans Not Approved by Stockholders(2) |       | 429,726                                                                  |           | $                                                        | 29.06 |                                                                                                                                             | 614,400  
|                                                          |       |                                                                          |           |                                                          |       |                                                                                                                                             |          
|                                                          | Total |                                                                          | 7,434,485 |                                                          | $     | 24.98                                                                                                                                       |          
|                                                          |       |                                                                          |           |                                                          |       |                                                                                                                                             |          

---

24

---



25

---





Item 6.Selected Financial Data

The following selected historical information has been derived from our audited financial statements. The financial information as of December 31, 2004 and
2003 and for each of the three years in the period ended December 31, 2004 are derived from audited financial statements included elsewhere in this Annual Report on
Form 10-K. The table should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation," and Item 8,
"Financial Statements and Supplementary Data."

|                                                             |                                              | For the Years Ended December 31,
|------------------------------------------------------------ | -------------------------------------------- | --------------------------------
|
|
|Consolidated Statements of Operations Data:                  |                                              |                                 
|Revenue:                                                     |                                              |                                 
|                                                             | Service revenue                              |                                 
|                                                             | Service revenue  related party              |                                 
|                                                             | Product sales                                |                                 
|                                                             | License fees and royalties                   |                                 
|                                                             | License fees and royalties  related party   |                                 
|                                                             |                                              |                                 
|                                                             |                                              | Total revenue                   
|Operating expenses:                                          |                                              |                                 
|                                                             | Cost of products sold                        |                                 
|                                                             | Research and development                     |                                 
|                                                             | Research and development  related party     |                                 
|                                                             | Sales, general and administrative            |                                 
|                                                             | Acquired in-process research and development |                                 
|                                                             |                                              |                                 
|                                                             |                                              | Total operating expenses        
|                                                             |                                              |                                 
|Income (loss) from operations                                |                                              |                                 
|Interest and other income                                    |                                              |                                 
|Interest and other expense                                   |                                              |                                 
|                                                             |                                              |                                 
|Income (loss) before income tax expense                      |                                              |                                 
|Income tax expense                                           |                                              |                                 
|                                                             |                                              |                                 
|Net income (loss)                                            |                                              | $                               
|                                                             |                                              |                                 
|Basic net income (loss) per share                            |                                              | $                               
|                                                             |                                              |                                 
|Shares used in computing basic net income (loss) per share   |                                              |                                 
|                                                             |                                              |                                 
|Diluted net income (loss) per share                          |                                              | $                               
|                                                             |                                              |                                 
|Shares used in computing diluted net income (loss) per share |                                              |                                 
|                                                             |                                              |                                 

|                                                         |  | December 31,
|-------------------------------------------------------- |  | ------------
|
|
|Consolidated Balance Sheet Data:                         |  |             
|Cash, cash equivalents and available-for-sale securities |  | $           
|Working capital                                          |  |             
|Total assets                                             |  |             
|Long-term obligations, less current portion              |  |             
|Total stockholders' equity                               |  |             

26

---





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

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the year ended
December 31, 2004, are not necessarily indicative of the results that may be expected for future fiscal years. The following discussion and analysis should be read in conjunction with our
historical financial statements and the notes to those financial statements that are included in Item 8 of Part II of this Annual Report on Form 10-K.

Overview

We have been a public company for five years, and have built upon our broad technology platform to establish ourselves as a profitable company with several
complementary operating businesses. Since our initial public offering in 1999, our revenue has increased at a compounded average annual rate of 22%, and we have been profitable since the first quarter
of 2001.

Since
our inception, we have invested heavily in establishing the technology, instrumentation, and informatics necessary to pursue high-throughput discovery of materials.
These materials include catalysts to manufacture commodity chemicals and polyolefins, polymers and phosphors for life science and industrial applications, and specialized materials for electronics
applications. We believe we are now well positioned to capitalize on this investment. We believe that the drivers of our near term growth and profitability are already in place, namely:



Current Year Developments

Our major achievements in 2004 and their impact on our business are highlighted below:



27

---





In
the year ended December 31, 2004, we generated total revenue of $83.2 million, with operating income of $13.7 million, net income of $12.9 million and
diluted earnings per share of $0.38. Our earnings were impacted by purchase accounting adjustments associated with the IntelliChem acquisition and variability in our effective income tax rate.
Included in the 2004 operating income and net income were approximately $2.5 million of purchase accounting adjustments and other special charges arising from the acquisition of IntelliChem,
including an in-process research and development charge of $2.3 million, the amortization of intangible assets and other merger related expenses. For 2004, we had an effective
income tax rate of 21%, compared to 18% in 2003. The 2004 effective rate reflected the recognition in the fourth quarter of 2004 of over $4.3 million in benefits from certain of our deferred
tax assets, which previously had been reserved. In 2003, $1.3 million in tax benefits was recognized. Based on our current forecast for 2005, we anticipate an effective income tax rate of
approximately 40%.

During
2004, we generated positive cash flow from operations and ended the year with $136.5 million in cash, cash equivalents and available-for-sale
securities after paying a net $26.9 million to acquire IntelliChem.

Our
total headcount increased from 213 employees at the end of 2002 to 235 employees at the end of 2003 and to 275 employees at the end of 2004 primarily as the result of IntelliChem
acquisition as well as meeting the mix and level of staffing promised to ExxonMobil in particular. We anticipate that our
headcount will continue to increase to meet the mix and level of staffing required by the ExxonMobil and Dow alliances and by the expansion of our business.

As
of December 31, 2004, our retained earnings were approximately $10.2 million. However, we may return to the state of accumulated deficits as we continue to expand
staffing, equipment, and facilities, and due to the requirement to expense employee stock options after July 1, 2005. See "Risk Factors."

We
expect to continue to make significant investments in research and development to enhance our technologies, including for the development of new instruments and software. In addition,
our strategy is to expand our operations and to continue to build our research and development, business development, and marketing efforts.

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Note 1 to the Consolidated Financial Statements included under Item 8 in this Annual Report on Form 10-K, describes the significant accounting policies and methods used in
the preparation of the Consolidated Financial Statements. Preparing financial statements and related disclosures requires management to exercise judgment in making estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and

28

---



expenses.
These estimates and assumptions are affected by management's application of accounting policies. Estimates are used for, but not limited to, revenue recognition, establishing the warranty
expense accrual, establishing slow-moving, obsolete and excess inventory reserves, determining when technical feasibility for our software products has been achieved, and determining the
useful life of intangible assets. The following critical accounting policies, among others, are impacted significantly by judgments, estimates and assumptions used in the preparation of the
Consolidated Financial Statements.

Source of Revenue and Revenue Recognition Policy

We recognize revenue in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101,Revenue
Recognition in Financial Statements, SAB No. 104,Revenue Recognition, the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2,Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, Financial Accounting Standards Board Technical Bulletin 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts, and other authoritative accounting
literature. We generate revenue
from services provided under research collaborations, the sale of products, license of software, provision of support and maintenance services, and the license of intellectual property. It is possible
for our customers to work with us in multiple areas of our business and contracts may include multiple elements of service revenue, product revenue, and license revenue. In determining the basis for
revenue recognition, we first determine the fair value of any extended warranty services and defer this revenue to be recognized over the service period. For those contracts that involve multiple
element deliverables, we identify all deliverables and allocate revenue between the units of accounting in accordance with the Emerging Issues Task Force consensus on Issue 00-21, or EITF
00-21,Multiple-Deliverable Revenue Arrangements. In an arrangement that includes software that is more than incidental to the products or
services as a whole, we recognizes revenue from the software and software-related elements, as well as any non-software deliverable(s) for which a software deliverable is essential to its
functionality, in accordance with SOP 97-2.

Service
revenue consists of research and development funding received from collaborative partners as well as support and maintenance or extended warranty agreements. Product revenue
consists of payments from customers for Discovery Tools systems, comprising hardware, associated software and intellectual property licenses and consumables. Royalties and license fees include fees
for licensing of our software, intellectual property, proprietary materials and technology license payments and royalties on laboratory instruments and software sold under license by third parties.

Service Revenue

We recognize revenue from research collaboration agreements, software consulting, and support and maintenance agreements as earned upon performance of the
services specified in the agreements. Payments received that are related to future performance are deferred and recognized as revenue as the performance requirements are fulfilled.

Non-refundable
up-front payments received in connection with research and development collaboration agreements, including technology access fees, are deferred and
recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term. Revenue from milestone payments, which are substantially at risk
until the milestones are completed, is recognized upon completion of these milestone events. Milestone payments to date have been immaterial.

Revenue
allocable to support and maintenance is recognized on a straight-line basis over the period the support and maintenance is provided. Our product related software
licenses may provide for technical support, bug fixes and rights to unspecified upgrades on a when-and-if-available basis for periods defined within the contract.
Revenue related to this post contract customer support is deferred and recognized over the term of the contracted support.

29

---



Product Sales

We recognize revenue from the sale of Discovery Tools hardware and the license of associated software, and all related costs of products sold are expensed, once
delivery has occurred and customer acceptance has been achieved. A warranty expense accrual is established at the time of customer acceptance. A determination is made for each system delivered as to
whether software is incidental to the system as a whole. If software is not incidental to the Discovery Tools system as a whole, revenue from these arrangements is recognized in accordance with
American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"), as amended. If software is incidental to the Discovery
Tools system, revenue from the sale of the Discovery Tools system is earned and recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. If there are extended payment terms, we recognize product revenue as these payments
become due. We consider all arrangements with payment terms extending beyond 12 months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. In multiple element arrangements, we use the residual method to allocate revenue to delivered elements once it has established fair value for all undelivered
elements.

Software License Fees

For software licensed on an annual right to use basis, revenue is recognized straight line over the term of the license. For revenue allocable to the software
portion of a multiple element arrangement or licensed on a perpetual basis, we recognize revenue upon delivery of the software product to the end-user and commencement of the license,
unless we have ongoing obligations for which fair value cannot be established or the fee is not fixed or determinable or collectibility is not probable, in which case we recognize revenue only when
each of these criteria has been met. We consider all arrangements with payment terms longer than twelve months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is
recognized as payments become due from the customer. If evidence of the fair value of one or more undelivered elements does not exist, the total revenue is deferred and recognized when delivery of
those elements occurs or when fair value can be established.

Intellectual Property License Fees and Royalties

We recognize license fee revenue for licenses to our intellectual property when earned under the terms of the agreements. Generally, revenue is recognized upon
transfer of the license unless we have continuing obligations for which fair value cannot be established, in which case the revenue is recognized over the period of the obligation. If there are
extended payment terms, we recognize license fee revenue as these payments become due. We consider all arrangements with payment terms extending beyond 12 months not to be fixed or
determinable. In certain licensing arrangements there is provision for a variable fee as well as a non-refundable minimum amount. In such arrangements, the amount of the
non-refundable minimum guarantee is recognized upon transfer of the license unless we have continuing obligations for which fair value cannot be established and the amount of the variable
fee in excess of the guaranteed minimum is recognized as revenue when it is fixed and determinable.

We
recognize royalty revenue based on reported sales by third party licensees of products containing our materials, software, and intellectual property. If there are extended payment
terms, royalty revenues are recognized as these payments become due. Non-refundable royalties, for which there are no further performance obligations, are recognized when due under the
terms of the agreements.

See
Note 1 of Notes to Consolidated Financial Statements for a further discussion of our revenue recognition policies.

30

---



Warranty Expense Accrual

A warranty expense accrual is established at the time of customer acceptance of a Discovery Tool system and is included as a cost of product sold. Management is
required to exercise judgment in establishing the appropriate level of warranty expense accrual for each Discovery Tool system delivered and establishes the accrual based, in part, on reference to
actual warranty costs incurred on similar systems. The actual results with regard to warranty expenditures could have a material impact on our financial statements. When actual warranty costs are
anticipated to be higher than our original estimates, an additional expense is charged to cost of products sold in the period in which such a determination is made. When actual warranty costs are
lower than our original estimates, the difference will have a favorable impact to cost of products sold at the time the warranty expires for the systems.
For the years ended December 31, 2004, 2003, and 2002, we have recorded a favorable adjustment of approximately $1.0 million, $0.3 million, and $0, respectively.

Research and Development Costs

We account for research and development costs in accordance with several accounting pronouncements, including SFAS 2,Accounting for
Research and Development Costs, and SFAS 86,Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. SFAS 86 specifies that costs incurred internally in creating a computer software product should be charged to expense when incurred as research and development until
technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general
release to customers. Judgment is required in determining when the technological feasibility of a product is established. We have determined that technological feasibility for our software products is
reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established are not material, and accordingly, no amounts are capitalized. We
expense all research and development costs when incurred.

Inventories

We carry our inventories at the lower of cost or market, cost being determined on a specific identification basis. We apply judgment in determining the provisions
for slow-moving, excess and obsolete inventories based on historical experience and anticipated product demand.

Intangible Assets

We amortize intangible assets over their estimated economic lives. Determining the estimated economic life of intangible assets requires judgment on the part of
management. For example, if we determined that the estimated economic lives of these assets were one year less than those reported in Note 7 of the Notes to the Consolidated Financial
Statements, the amortization expense of intangibles for 2004 would have been increased by $107,000. We will conduct impairment reviews of intangible assets annually or when circumstances indicate the
impairment of intangible assets. We will also review the estimated economic life of intangible assets when circumstances indicate the change of economic life of intangible assets.

Employee Stock Options

We generally grant stock options to our employees for a fixed number of shares with an exercise price equal to the fair value of the shares on the date of grant.
As allowed under the Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation, ("SFAS 123"), we have
elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees("APB 25"), and related interpretations in
accounting for stock awards to employees. Accordingly, no compensation expense is recognized in our financial statements in connection with stock options granted

31

---



to
employees with exercise prices not less than fair value. Deferred compensation for options granted to employees is determined as the difference between the deemed fair market value of the Company's
common stock on the date options were granted and the exercise price. Had we elected to expense stock options based on their fair value in accordance with SFAS 123, we would have reported a
loss of approximately $135,000, $9.4 million, and $16.8 million, respectively, for the years ended December 31, 2004, 2003, and 2002.

Business Combination

On November 30, 2004, we acquired 100% of the outstanding capital stock of IntelliChem, a provider of intelligent electronic lab notebooks (iELN) for
customers in the pharmaceutical, biotechnology, and chemical industries. The results of IntelliChem's operations have been included in the consolidated financial statements since that date.

IntelliChem
offers iELN software as well as consulting, education, and support services. In considering the merger, we determined that the merger would provide us with a product for
integrating and unifying chemical research and development data, enabling improvements in the efficiency of research in the pharmaceutical and chemical industries. The integration of IntelliChem's
iELN solutions and our suite of Renaissance software provides the basis for a unified set of tools for high-throughput and conventional research. The resulting integrated suite of
applications will allow companies to replace paper laboratory notebooks with an electronic, searchable system. It will also provide scientists with a robust, broad, and
easy-to-use set of time-saving and enabling tools for planning and executing experiments, and provide the entire enterprise with real-time collaborative
decision-support and analysis capabilities to help scientists, engineers and project managers make better decisions. In accordance with Statement of Financial Accounting Standards No. 141, Business
Combinations, we allocated the purchase price to the tangible assets, deferred compensation, liabilities, and intangible assets acquired, as
well as in-process research and development, based on their estimated fair values. The excess purchase price over the fair values was recorded as goodwill. The fair value assigned to
intangible assets acquired was based on estimates and assumptions determined by management. The acquired
goodwill was assigned entirely to our software segment. Purchased intangibles with finite lives are amortized on a straight-line basis over their respective useful lives.

The
total purchase price for this acquisition was $30.6 million, consisting of approximately $29.3 million in cash, $1.0 million in fair value of assumed stock
options to purchase 44,126 shares of our common stock, and $0.3 million in transaction costs, consisting of legal and other professional service fees. The intrinsic value of these options,
totaling approximately $0.7 million, has been recorded as deferred stock compensation.

The
purchase price allocation is as follows (in thousands):

AmountFair value of net assets purchased

$
4,476In-process research and development


2,260Trade name


860Developed technology


8,370Customer relationships


4,700Unearned stock compensation


651Deferred tax liabilities


(4,151
)Release of valuation allowance against acquirer's deferred income tax assets upon recognition of deferred income tax liabilities on acquired identifiable intangible assets in connection with acquisition of
IntelliChem


4,151Goodwill


9,283Total

$
30,600


32

---



The allocation of the consideration for the acquisition of IntelliChem to its individual assets and liabilities was based on management's analysis and estimates of the fair values of the
acquired assets and liabilities. In addition to the value assigned to in-process research and development ("IPR&D") projects, and IntelliChem's tangible assets, specific intangible assets
were identified and valued. The identifiable intangible assets included customer relationships, a trade name, and developed technology.

The
IPR&D project that IntelliChem has been working on was the development of next generation of IntelliChem software. That software has not yet been proven to be technologically
feasible but has been developed to a point where it had value associated with potential future revenue. Because technological feasibility was not yet proven and no alternative future uses were
believed to exist for the in-process technologies, the assigned value was expensed immediately upon the closing date of the acquisition, in accordance with FASB Interpretation
No. 4,Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.

The
value of IPR&D was determined by estimating the expected cash flows from the projects once commercially viable, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value as defined below. A discount rate of 28% was used which is higher than IntelliChem's computed weighted average cost of capital of 20% due to
inherent risk surrounding the successful development of the IPR&D and the increase in projected financial results compared with historical results.

In
performing this purchase price allocation, we considered, among other factors, our intention for future use of the acquired assets, analyses of historical financial performance and
estimates of future performance of IntelliChem's products. The fair value of intangible assets was primarily based on the income approach. The relief from royalty approach was also utilized when
appropriate. The rates utilized to discount the net cash flows to their present values ranged from 24% to 28%. These discount rates were determined after consideration of our rate of return and the
weighted average return on assets. Risks we identified and considered in this analysis included achieving anticipated levels of market acceptance and penetration, successful completion of development
efforts, market growth rates, and risks related to the impact of potential changes in future target markets. At December 31, 2004, identifiable intangible assets purchased in the IntelliChem
acquisition consisted of the following (in thousands, except for useful life) with a weighted average useful life of 5.2 years  no significant residual value is estimated for these
assets:

Amount

Useful LifeTrade name

$
860

4.5 yearsDeveloped technology


8,370

4.5 yearsCustomer relationships


4,700

6.5 yearsBalance at December 31, 2004, at cost

$
13,930


Results of Operations

Comparison of Years Ended December 31, 2004 and 2003

Revenue

Our total revenue in 2004 was $83.2 million, an increase of 32% from $63.0 million in 2003. This increase was attributable to expansion in all
aspects of our business, especially the sale of our Discovery Tools systems. Our service revenue increased 9% from $38.7 million in 2003 to $42.3 million in 2004 (including
$1.2 million and $1.7 million from a related party in 2004 and 2003, respectively). Our product sales increased 87% from $14.5 million in 2003 to $27.1 million in 2004. Our
revenue from license fees and royalties increased 41% from $9.8 million in 2003 to $13.9 million in 2004 (including $150,000 from a related party in 2004) due to the expansion of our
customer base in licensing of materials, software and technology, in particular ExxonMobil.

33

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In
the year ended December 31, 2004, we sold 13 Discovery Tools systems compared with 6 in 2003. The number of systems sold included both complex workflows as well as our
CORE(x) modules.

ExxonMobil,
Merck, and an undisclosed partner accounted for 54%, 4%, and 3%, respectively, of revenue for the year ended December 31, 2004. ExxonMobil, Merck, and an undisclosed
partner accounted for 35%, 13%, and 11%, respectively, of total revenue for the same period in 2003.

We
segregate revenue by the following segments (in thousands):

Years Ended
December 31,2004

2003Industry Collaborations

$
40,958

$
36,125Industry Collaborations  Related Party


1,173


1,671Discovery Tools


28,576


18,861Intellectual Property Licensing


4,191


3,887Sensors


1,472


1,191Software


6,665


1,228Software  Related Party


150


Total

$
83,185

$
62,963


The
reconciliation of segment revenue above to the revenue disclosed in the Consolidated Income Statements is provided in Note 6 "Segment Disclosure" of Notes to the Consolidated
Financial Statements.

Industry Collaborations Revenue

The Industry Collaborations group generates revenue primarily from the research services it provides to our collaboration partners.

Industry
Collaborations revenue increased 13% from $36.1 million in 2003 to $41.0 million in 2004. The increase in industry collaboration revenue in 2004 was primarily
attributable to the funding received under the alliance agreement we entered into with ExxonMobil effective April 2003. The increase in Industry Collaboration revenue from ExxonMobil was
partially offset by a decrease in the level of funding received from an undisclosed partner.

We
expect to receive over $200 million in revenue from ExxonMobil and over $120 million in revenue from Dow during the 5-year term of each of the alliances,
through our research collaborations, Discovery Tools, and license of software and intellectual property. As of December 31, 2004, we have recognized approximately $59.6 million from
ExxonMobil alliance, including approximately $37.3 million in Industry Collaborations revenue. We believe these two alliances will greatly contribute to our expected growth in Industry
Collaborations revenue in 2005 through 2009.

Industry Collaborations Revenue  Related Party

Under an 18-month Collaborative Research and License Agreement entered in May 2003, Ilypsa, Inc., a related party (See Note 8
"Related Party Transactions" of Notes to the Consolidated Financial Statements.), paid us research funding in consideration for direct costs incurred by us specifically attributable to, or
specifically used in furtherance of, the research program. Research funding payments were due to us at the start of each month, with an adjustment at the end of each month for the difference between
forecast and actual costs incurred. Revenue resulting from work performed under this Agreement during the years ended December 31, 2004 and 2003 amounted to $1.2 million and
$1.7 million, respectively, and has been classified as related party revenue.

34

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Discovery Tools Revenue

The Discovery Tools group generates revenue primarily from the sale of Discovery Tools and associated software and intellectual property.

Discovery
Tools revenue increased 52% from $18.9 million in 2003 to $28.6 million in 2004. For the year ended December 31, 2004, Discovery Tools revenue included
$25.7 million of product sales, $2.8 million of service revenue, and $31,000 of license revenue. For the year ended December 31, 2003, Discovery Tools revenue included
$14.5 million of product sales and $4.4 million of service revenue. The increase in Discovery Tools revenue in 2004 was primarily due to increased shipments of Discovery Tools systems in
2004. During year 2004, we shipped 13 Discovery Tools systems, including our CORE(x) modules, to chemical, pharmaceutical, academic institution, and
several other customers. We adopted our modular strategy to facilitate more timely customer purchases whereas purchase decision on a complete Discovery Tools system usually takes a long time to make.
This modular approach allows our customers to build up full combinatorial high-throughput experimentation capability over time by acquiring stand-alone portions of the Discovery Tools
systems. In 2004 we successfully sold several less expensive modules of our Discovery Tools systems to pharmaceutical companies.

Under
the ExxonMobil and Dow alliances, we are contracted to deliver multiple Discovery Tools systems in the next few years. We also negotiate with other chemical and pharmaceutical
companies for the sale of Discovery Tools systems. We believe our expanding customer base will contribute to our expected growth of Discovery Tools revenue.

Intellectual Property Licensing Revenue

The Intellectual Property Licensing group generates revenue primarily from the licensing fees received from licensing of our intellectual property and from
royalties paid by third party licensees for sale of products containing our materials and intellectual property.

Intellectual
Property Licensing revenue increased 8% from $3.9 million in 2003 to $4.2 million in 2004. The increase in licensing revenue in 2004 was primarily due to
payments received from ExxonMobil and UOP. We believe that the demonstrated acceptance of our high-throughput experimentation technology by our customers will lead to the expected growth
in our license fee revenue in future years.

In
September 2004, Dow announced the commencement of commercial production of the VERSIFY Plastomers and Elastomers, a family of products manufactured using Symyx-discovered
catalysts. VERSIFY polymers are designed to improve optics, sealing performance, elasticity, flexibility, and softness for packaging producers, manufacturers of thermoplastic elastomers and olefins,
and converters in the consumer products sector. We expect to receive royalties from the sale of these polymers beginning in the first quarter of 2005. In December 2004, JSR Corporation
announced the commencement of commercial sales of new electronic materials containing polymers made under a license from us. We expect to earn royalties from the sale of these products beginning in
the first quarter of 2005. We believe that these two commercialized materials, along with the one commercialized by Agfa in 2003, will contribute to our growth in Intellectual Property Licensing
revenue in the future.

Software Revenue

The Software group generates revenue primarily from the licensing of Renaissance and electronic laboratory notebook (iELN) software and provision of associated
support, maintenance and consulting services.

Software
revenue increased 455% from $1.2 million in 2003 to $6.8 million in 2004. The increase in Software revenue in 2004 was primarily due to the increased revenue from
ExxonMobil and Pfizer for software licenses, and associated maintenance and support. During 2004, we also initiated a couple of pilot programs for stand-alone software licensing with chemical and
pharmaceutical companies.

35

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Sensors Revenue

The Sensors group offers development services and licenses for specific applications to our sensor technology. Our sensors revenue in both 2004 and 2003 consisted
primarily of payments received from Hella KG.

Cost of Products Sold

Cost of products sold was $7.9 million, or 29% of product sales revenue for the year ended December 31, 2004, compared to $2.9 million, or
20% of product sales revenue for the year ended December 31, 2003. The increase in the cost of products sold was due to the increase of product sold. The increase in cost of products sold as a
percentage of product revenue in 2004 was due to a change in the product mix shipped in the respective years, the development costs related to prototypes delivered being expensed as discussed below,
and a favorable adjustment of warranty reserve of approximately $1.0 million.

The
cost of products sold will be driven by the variability of product mix and sales volume in each period. The cost of products sold as a percentage of product sales is expected to
fluctuate from period to period because the majority of our Discovery Tools systems are built to order or to particular specifications. For systems that include a significant development component
prior to their commercial build, or systems delivered to customers as a prototype, the development costs incurred prior to the commercial build are expensed as development costs, which results in a
lower cost of products sold and higher margin in the quarter in which such a system is delivered to the customer.

The
cost of products sold will also be affected by the adjustment of warranty reserve for the pre-existing sales. When actual warranty costs are lower than our estimates, the
difference will have a favorable impact to cost of products sold at the time the warranty expires for the systems. When actual warranty costs are anticipated to be higher than our original estimates,
an additional expense is charged to cost of products sold in the period in which such a determination is made.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and other personnel-related expenses, facility costs, supplies, and depreciation of facilities
and laboratory equipment.

The
table below indicates the major collaborative partners, defined as those contributing greater than 10% of collaborative research revenue in 2004, for whom we conducted research and
development, together with the date upon which the current contract ends and the primary focus of the collaborations. Contracts may only be extended by mutual agreement between us and the
collaborative partner.

Partner

Current Research
Contract Ends

Primary focus of current collaborative effortsBP

12/31/2005

Catalysts for certain commodity chemicalsExxonMobil

5/31/2008

Catalysts for certain commodity chemicals including olefins


We
do not track fully burdened research and development costs or capital expenditures by project. However, we estimate based on Full Time Equivalent ("FTE") effort. Approximately 81% of
research and development effort in 2004 was undertaken for collaborative projects funded by our partners, and approximately 19% of research effort was on internally funded research including
development costs related to our Discovery Tools business. This compares with approximately 65% of research and development effort undertaken for collaborative projects funded by our partners, and
approximately 35% of research effort on internally funded research including development costs related to our Discovery Tools business during 2003. Because of the technical headcount committed to the
ExxonMobil alliance, we significantly reduced the FTE effort for internally funded research projects. Due to the nature of our research and our dependence on our collaborative partners to
commercialize the results of the research,

36

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we
cannot predict with any certainty whether any particular collaboration or research effort will ultimately result in a commercial product and therefore whether we will achieve future milestones or
royalty payments under our various collaborations.

Research
and development expenses in 2004 were $41.1 million, including $1.2 million of direct costs of research services provided to a related party, compared with
$40.1 million in 2003, including $1.7 million to a related party, an increase of $1.1 million or 3%. The increase in 2004 was due primarily to increases in salary related expenses
due to the hiring of additional scientific and technical staff to work on research and development projects for ExxonMobil and increased headcount to develop our software platform, partially offset by
the decrease in direct costs of research services provided to a related party.

Research
and development expenses represented 49% of total revenue in 2004 and 64% of total revenue in 2003. Research and development expenses as a percentage of total revenue decreased
because the increase in research and development expenses lagged the significant increase in total revenue. Our core businesses are research to discover new materials, the sale of instruments and
licensing of related software and licensing of intellectual property and materials discovered in our collaborative and internal research programs. Accordingly, we expect to continue to devote
substantial resources to research and development, and we expect that research and development expenses will continue to increase in absolute dollars.

Sales, General and Administrative Expenses

Our sales, general and administrative expenses consist primarily of personnel costs for business development, legal, general management, finance, and human
resources, as well as payments of commissions to our sales agents and professional expenses, such as legal and accounting. Sales, general and administrative expenses in 2004 were $18.2 million,
compared with $14.9 million in 2003, an increase of $3.3 million or 22%. The increase in 2004 was primarily due to an increase of personnel costs of approximately $2.9 million,
mainly as a result of adding a number of business development staff to manage and support our growth, and an increase in auditing and tax related service fees of approximately $0.6 million,
largely as a result of the requirements of the Sarbanes-Oxley Act, offset partially by the decrease in legal fees for intellectual property litigation.

Sales,
general and administrative expenses represented 22% of total revenue in 2004 and 24% of total revenue in 2003. We expect that our sales, general and administrative expenses will
increase in absolute dollar amounts as we:



Acquired In-Process Research and Development

In November 2004, we acquired IntelliChem in a transaction accounted for as a purchase. The purchase price was allocated to the assets acquired, including
intangible assets, based on their estimated fair values. The intangible assets include approximately $2.3 million for acquired in-process technology for projects that did not have
future alternative uses. The value of the purchased in-process technology was determined using the income approach. At the date of the IntelliChem acquisition, the development of these
projects had not yet reached technological feasibility, and the technology in process had no alternative future uses. Accordingly, these costs were expensed in 2004. See more discussion on acquired
in-process research and development under "Business Combination."

37

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Interest and Other Income (Expense), Net

Interest and other income (expense), net, for the year ended December 31, 2004 consisted of interest income of approximately $2.4 million and a
$155,000 gain from the sale of fixed assets to a related party. Interest and other income (expense), net, for the year ended December 31, 2003 consisted primarily of interest income of
approximately $2.0 million. Interest income represents interest income earned on our cash, cash equivalents and available-for-sale securities. Interest income increased
in 2004 due to the impact of higher average interest rates and a higher average investment balance in 2004. We anticipate that our interest income in 2005 will be slightly greater than in 2004 due to
the impact of recent interest rate increases and as our positive cash flows from operating and financing activities continue to increase our average investment balance.

Provision for Income Taxes

We recorded an income tax expense of $3.3 million in 2004 and $1.3 million in 2003. Our effective income tax rate was 20.5% for fiscal year 2004 and
18.3% for fiscal year 2003. The effective income tax
rate was lower than our statutory rate in both 2004 and 2003 due to the recognition of approximately $4.3 million and $1.3 million, respectively, of income tax benefits from certain of
our deferred tax assets in 2004 and 2003, which had previously been reserved. By weighing all available evidence, we believe that it was more likely than not that we would be able to realize the
benefit of all remaining significant deferred tax assets at December 31, 2004.

As
of December 31, 2004, we had net deferred tax assets of approximately $4.9 million. Our net deferred tax assets primarily relate to federal and state research and
development credits and the temporary difference between book and tax depreciation expenses, partially offset by deferred tax liabilities recognized for intangible assets in the IntelliChem
acquisition. As of December 31, 2004, we had federal and Oregon net operating loss carryforwards of approximately $2.3 million and $4.8 million, respectively. The net operating
losses arose from the acquisition of IntelliChem and may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The net operating loss carryforwards will start to expire in 2020,
if not utilized.

As
of December 31, 2004, we had federal and state research and development tax credits of approximately $1.3 million and $1.8 million, respectively. The federal
research and development tax credit will begin to expire in 2011, while the state research and development credits have no expiration date.

Comparison of Years Ended December 31, 2003 and 2002

Revenue

Our total revenue in 2003 was $63.0 million, a decrease of 3% from $64.8 million in 2002. This decrease was primarily due to the decrease in our
product revenue caused by lower sales of Discovery Tools systems. Our service revenue increased 9% from $35.4 million in 2002 to $38.7 million in 2003 (including $1.7 million from
a related party in 2003). Our revenue from license fees and royalties increased 177% from $3.5 million in 2002 to $9.8 million in 2003 due to the expansion of our customer base in
licensing of materials, software, and technology, in particular ExxonMobil.

38

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Dow, Eli Lilly, ExxonMobil, Merck, and an undisclosed partner accounted for 7%, 0%, 35%, 13%, and 11%, respectively, of total revenue for the year ended December 31, 2003. Dow,
Eli Lilly, ExxonMobil, Merck, and an undisclosed partner accounted for 13%, 16%, 19%, 9%, and 10%, respectively, of revenue for the same period in 2002.

We
segregate revenue by the following segments (in thousands):

Years Ended
December 31,2003

2002Industry Collaborations

$
36,125

$
28,889Industry Collaborations  Related Party


1,671


Discovery Tools


18,861


31,856Intellectual Property Licensing


3,887


3,311Sensors


1,191


Software


1,228


765Software  Related Party





Total

$
62,963

$
64,821


The
reconciliation of segment revenue above to the revenue disclosed in the Consolidated Income Statements is provided in Note 6 "Segment Disclosure" of Notes to the Consolidated
Financial Statements.

Industry Collaborations Revenue

Industry Collaborations revenue increased from $28.9 million in 2002 to $36.1 million in 2003. The increase in Industry Collaborations revenue in
2003 was primarily attributable to the funding received under the new alliance agreement we entered into with ExxonMobil effective April 2003. The increase in Industry Collaborations revenue
from ExxonMobil was partially offset by a decrease in the level of funding received from Celanese.

Industry Collaborations Revenue  Related Party

Revenue resulting from work performed under the Ilypsa Research Agreement during the year ended December 31, 2003 amounted to $1.7 million, and has
been classified as related party revenue.

Discovery Tools Revenue

Discovery Tools revenue decreased from $31.9 million in 2002 to $18.9 million in 2003. The decrease in Discovery Tools revenue in 2003 was primarily
due to a lower sales volume of our larger Discovery Tools Systems. We delivered Polymorph Discovery Tools systems which generated approximately $9.9 million of revenue in 2002, and none of
these same systems were delivered in 2003.

During
year 2003, we shipped Discovery Tools systems to Merck, North Dakota State University, Battelle Memorial Institute and several other customers. Discovery Tools revenue included
$14.5 million of product sales and $4.4 million of service revenue for the year ended December 31, 2003 and $25.6 million of product sales and $6.2 million of
service revenue for the year ended December 31, 2002. Service revenue in 2002 was higher than 2003 as we received approximately $3.4 million of funding towards the development of two new
Discovery Tool platforms in 2002.

Intellectual Property Licensing Revenue

Intellectual Property Licensing revenue increased 17% from $3.3 million in 2002 to $3.9 million in 2003. The increase in licensing revenue in 2003
was primarily due to payments received from ExxonMobil.

39

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In
the final quarter of 2003, we received our first royalty payments from Agfa for the sale of our commercialized material.

Sensors Revenue

We started receiving license fees from the licensing of our sensor technology to Hella KG in 2003.

Software Revenue

Software revenue increased from $0.8 million in 2002 to $1.2 million in 2003. The increase was primarily due to the increase in license fees
received from ExxonMobil.

Cost of Products Sold

Cost of products sold was $2.9 million, or 20% of product sales revenue for the year ended December 31, 2003, compared to $6.2 million, or
24% of product sales revenue for the year ended December 31, 2002. The decrease in the cost of products sold was due to the change in the product mix shipped in the respective years.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and other personnel-related expenses, facility costs, supplies, and depreciation of facilities
and laboratory equipment.

Approximately
65% of research and development effort in 2003 was undertaken for collaborative projects funded by our partners, and approximately 35% of research effort was on internally
funded research including development costs related to our Discovery Tools business. This compares with approximately 63% of research and development effort undertaken for collaborative projects
funded by our partners, and approximately 37% of research effort on internally funded research including development costs related to our Discovery Tools business during 2002.

Research
and development expenses in 2003 were $40.1 million, including $1.7 million of direct costs of research services provided to a related party, compared with
$39.3 million in 2002, an increase of $0.8 million or 2%. The increase in 2003 was due primarily to increases in salary related expenses due to the hiring of additional scientific and
technical staff to work on research and development projects for ExxonMobil and our related party, Ilypsa.

Research
and development expenses represented 64% of total revenues in 2003 and 61% of total revenues in 2002.

Sales, General and Administrative Expenses

Our sales, general and administrative expenses consist primarily of personnel costs for business development, legal, general management, finance, and human
resources, as well as payments of commissions to our sales agents and professional expenses, such as legal and accounting. Sales, general and administrative expenses in 2003 were $14.9 million,
compared with $14.6 million in 2002, an increase of $0.3 million or 2%. The increase was primarily due to the addition of a number of business development staff and their associated
costs to manage and support our growth.

Sales,
general and administrative expenses represented 24% of total revenues in 2003 and 23% of total revenues in 2002.

Net Interest Income

Net interest income represents interest income earned on our cash, cash equivalent and available-for-sale securities. Interest income was
$2.0 million in 2003, compared with $3.3 million in 2002. This decrease was due to lower interest rates in 2003. Interest expense was nil in 2003, compared with $9,000 in 2002.

40

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Provision for Income Taxes

We recorded an income tax expense of $1.3 million in 2003 and $2.7 million in 2002. Our effective income tax rate was 18.3% for fiscal year 2003 and
33.5% for fiscal year 2002. The decrease in our effective income tax rate in 2003 was due to the fact that we recognized approximately $1.3 million of income tax benefits from certain of our
deferred tax assets in 2003, which had previously been reserved.

As
of December 31, 2003, we had net deferred tax assets of approximately $1.4 million. Our net deferred tax assets primarily related to revenue that had been recognized for
income tax purposes but deferred for financial reporting purposes together with reserves and accruals that had been recognized for financial reporting purposes but not for income tax purposes,
partially offset by accelerated income tax deductions for insurance and property tax. At December 31, 2003, we had federal net operating loss carryforwards of approximately $3.2 million,
the majority of which were attributable to stock option deductions and whose benefit, if realized, would be recognized directly to equity.

Recent Accounting Pronouncements

Share-Based Payment

On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised 2004), Share-Based
Payment, ("SFAS 123(R)"), which is a revision of FASB Statement
No. 123,Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No. 25,Accounting for
Stock Issued to Employees, ("APB 25"), and amends FASB SFAS 95,Statement of Cash Flows. Generally, the approach in
SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to
be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

We
must adopt SFAS 123(R) no later than July 1, 2005.

SFAS 123(R)
permits public companies to adopt its requirements using one of two methods:



We
expect to adopt Statement 123(R) using the modified-prospective method.

As
permitted by SFAS 123, we currently account for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognize no compensation cost
for employee stock options. Accordingly, the adoption of SFAS 123(R)'s fair value method will have a significant impact on our results of operations, although it will have no impact on our
overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had
we adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income (loss) and
earnings per share in Note 1 of the Notes to the Consolidated Financial Statements ("Stock Based Compensation"). SFAS 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after adoption. We are currently evaluating the impact on our financial statements upon the adoption of SFAS 123(R).

41

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The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments

In March 2004, the FASB ratified the recognition and measurement guidance and certain disclosure requirements for impaired securities as described in
Emerging Issues Task Force (EITF) Issue No. 03-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.EITF Issue No. 03-1 provides new guidance for determining and recording impairment for both debt and equity securities. It also requires
additional disclosure for declines in investments that are deemed to be temporary under the standard. In September 2004, the FASB approved the issuance of a FASB Staff Position to delay certain
measurement and recognition guidance contained in EITF Issue No. 03-1. We will evaluate the effect, if any, of EITF Issue No. 03-1, when final guidance is
released. Disclosures required under EITF Issue No. 03-1 are included in Note 1 of the Notes to the Consolidated Financial Statements.

Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock

In July 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 02-14,Whether an
Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock, which provides guidance regarding application of the equity method of accounting
to investments other than common stock. EITF Issue No. 02-14 applies to reporting periods beginning after September 15, 2004. The adoption of EITF Issue
No. 02-14 did not have a material impact on our financial statements.

Inventory Costs

In November 2004, the FASB issued SFAS No. 151,Inventory Costs  an amendment of ARB No. 43,
Chapter 4("SFAS 151"). SFAS 151 amends ARB 43, Chapter 4 to clarify that "abnormal" amounts of idle facility expense, freight, handling costs and spoilage should
be recognized as current period charges. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not anticipate that the adoption of
this standard will have a material impact on our consolidated financial statements.

Exchanges of Nonmonetary Assets

In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assets, an amendment of APB
No. 29("SFAS 153"). SFAS 153 amends ARB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. We do not anticipate that the adoption of this standard will have a material impact on our financial statements.

Accounting for Preexisting Relationship between the Parties to a Business Combination

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-1,Accounting for
Pre-Existing Relationship between the Parties to a Business Combination, which provides guidance regarding separate accounting when two parties that have a
pre-existing contractual relationship enter into a business combination. EITF Issue No. 04-01 applies to reporting periods beginning after October 13, 2004. The
adoption of EITF Issue No. 04-1 is not expected to have a material impact on our financial statements.

Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004

On December 21, 2004, the FASB issued FASB Staff Position 109-1 ("FAS FSP 109-1"), Application of FASB Statement No. 109, Accounting for
Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of
2004, which provides guidance on the application of FASB Statement 109,Accounting for Income Taxes, to the provision
within the American Job Creation Act

42

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of
2004 that provides a tax deduction on qualified production activities. FAS FSP 109-1 applies to reporting periods beginning after December 21, 2004. The adoption of FAS
FSP 109-1 is not expected to have a material impact on our financial statements.

The Effect of Contingently Convertible Instruments on Diluted Earnings per Share

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-8,The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share, which provides guidance regarding when contingently convertible instruments should be included in diluted
earnings per share. EITF Issue No. 04-8 applies to reporting periods ending after December 15, 2004. The adoption of EITF Issue No. 04-8 did not have a
material impact on our financial statements.

Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-10,Determining
Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds, which provides guidance regarding how an enterprise should evaluate the aggregation
criteria in paragraph 17 of FASB Statement 131 when determining whether operating segments that do not meet the quantitative thresholds may be aggregated in accordance with
paragraph 19 of FASB Statement 131. The effective date of EITF Issue No. 04-10 has not been determined but early application is permitted. The adoption of EITF Issue
No. 04-10 is not expected to have a material impact on our financial statements.

Liquidity and Capital Resources

This section discusses the effects of the changes in our balance sheets, cash flows, and commitments on our liquidity and capital resources.

Balance Sheet and Cash Flows

We had positive cash flow from operating activities for the year ended December 31, 2004 and finished the year with cash, cash equivalents and
available-for-sale securities of approximately $136.5 million, after paying a net $26.9 million in the acquisition of IntelliChem. This compared to cash, cash
equivalent and available-for-sale securities of approximately $138.7 million at December 31, 2003.

As
of December 31, 2004, we had no long-term liabilities.

Our
operating activities provided $22.9 million, $27.2 million, and $9.7 million of cash in 2004, 2003, and 2002, respectively. The sources of cash for the three
years were primarily the receipt of research and development funding from collaborative partners and revenue from product sales and licensing, partially offset by operating expenses. We expect that we
will continue to generate positive cash flow from our operating activities in the near future.

Net
cash used in investing activities was $32.7 million, $43.1 million, and $1.6 million, respectively, in 2004, 2003, and 2002. Included in the 2004 cash used in
investing activities was the $26.9 million net cash paid associated with the acquisition of IntelliChem. The other fluctuations from period to period were due primarily to the timing of
purchases, sales, and maturity of our available-for-sale securities. Cash used in purchases of property, plant and equipment was $4.5 million, $9.7 million, and
$4.5 million, respectively, in 2004, 2003, and 2002. Included in the 2003 cash used in purchase of property, plant and equipment was $3.9 million paid for an office building. We expect
to continue to make significant investments in the purchase of property and equipment to support our expanding operations.

Financing
activities provided cash of $12.1 million, $7.4 million, and $2.0 million in 2004, 2003, and 2002, respectively. These amounts are primarily the proceeds
from the exercise of stock options and sale of stock under the Employee Share Purchase Plan in each of the three years. The increase from 2002 to 2003 and to 2004 is due primarily to the fact that
employees more actively exercised stock options as our stock price increased in 2003 and 2004.

43

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Current
liabilities decreased by approximately $2.1 million at December 31, 2004 as compared to December 31, 2003. A decrease of $4.2 million in deferred
revenue from 2003 to 2004 was largely offset by an increase in accounts payable and other accrued liabilities and an increase in accrued compensation and employee benefits. The decrease of deferred
revenue was attributable largely to the delivery of Discovery Tools systems in 2004, for which advanced deposits were made in 2003.

Backlog

As of December 31, 2004, our customers have contractually committed to funding of approximately $83 million and $226 million, respectively,
for year 2005 and beyond, for the purchase of Discovery Tools systems, licenses to our intellectual property and software, royalty for the sale of products containing Symyx-discovered materials and
for research collaborations.

Commitments

As of December 31, 2004 and 2003, our principal commitments were $11.3 million and $11.8 million, respectively. Principal commitments
consisted of our obligations under operating leases and our commitments to purchase inventory and fixed assets. We will satisfy these obligations as they become due over the next seven years.

Future
commitments under the operating leases for our facilities and purchase commitments for inventory as of December 31, 2004 are as follows (in thousands):

|                     |       | Total |        | Less than
1 Year |   | 1-3 Years |       | 3-5 Years |       | More Than
5 Years
|-------------------- | ----- | ----- | ------ | ---------------- | - | --------- | ----- | --------- | ----- | -----------------
|Facility Commitments |       | $     | 10,606 |                  | $ | 2,004     |       | $         | 4,187 |                  
|Purchase Commitments |       |       | 722    |                  |   | 722       |       |           |      |                  
|                     |       |       |        |                  |   |           |       |           |       |                  
|                     | Total |       | $      | 11,328           |   | $         | 2,726 |           | $     | 4,187            
|                     |       |       |        |                  |   |           |       |           |       |                  

We
believe that our current cash, available-for-sale securities balances and the cash flows generated by operations will be sufficient to satisfy our anticipated
cash needs for working capital, capital expenditures, investment requirements, stock repurchases, and other liquidity requirements associated with our existing operations for at least the coming year.
Nonetheless, we may raise additional funds through public or private financing, collaborative relationships or other arrangements. We cannot assure you that additional funding, if sought, will be
available on terms favorable to us. Further, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Collaborative
arrangements may require us to relinquish our rights to some of our technologies or products. Our failure to raise capital when needed may harm our business and operating results.

A
portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the
ordinary course of business, we may evaluate potential acquisitions of such businesses, products or technologies. We have entered into an agreement to acquire Synthematix, Inc. for
approximately $13 million of cash at close plus an additional potential payment of up to $4 million over a one-year period based on achievement of incremental revenue
targets. We expect to close this transaction in early April 2005.

Contingencies

We are currently not a party to any legal proceedings that we believe to be material.

We
may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable,
management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

44

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We
carry insurance with coverage and coverage limits that we believe to be adequate. Although there can be no assurance that such insurance is sufficient to protect us against all
contingencies, management believes that our insurance protection is reasonable in view of the nature and scope of our operations.

Off Balance Sheet Financing and Related Party Transactions

We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities as of December 31,
2004. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets. The only transactions between us and related parties during 2004
were:



Dividend Policy

We have never declared or paid any dividends on our capital stock. We currently expect to retain future earnings, if any, to support the development of our
business and do not anticipate paying any cash dividends in the foreseeable future.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is principally confined to our cash, cash equivalents and investments which have maturities of less than two years. We maintain a
non-trading investment portfolio of investment grade, liquid debt securities that limit the amount of credit exposure to any one issue, issuer or type of instrument. At December 31,
2004 our investment portfolio comprised approximately $19.4 million in money market funds and $117.1 million in U.S. corporate debt. The securities in our investment portfolio are not
leveraged, are classified as available-for-sale and are therefore subject to interest rate risk. We currently do not hedge interest rate exposure. If market interest rates were
to increase by 100 basis points, or 1%, from December 31, 2004 levels, the fair value of our portfolio would decline by approximately $583,000. The modeling technique used measures the change
in fair values arising from an immediate hypothetical shift in market interest rates and assumes ending fair values include principal plus accrued interest.

Interest Rate Sensitivity:
Principal Amount by Expected Maturity (in thousands)
Average Interest Rate

2005

2006

Total

Fair Value
December 31, 2004Available-for-sale securities

$
105,140

$
12,418

$
117,558

$
117,082Average interest rate


1.99
%

2.47
%

2.04
%


45

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Item 8.Financial Statements and Supplementary Data

|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                           |  | Page
|---------------------------------------------------------------------------------------------------- |  | ----
|Management Report on Internal Control over Financial Reporting                                       |  | 47  
|Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting |  | 48  
|Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements         |  | 50  
|Consolidated Balance Sheets at December 31, 2004 and 2003                                            |  | 51  
|Consolidated Income Statements for the Years Ended December 31, 2004, 2003 and 2002                  |  | 52  
|Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004, 2003 and 2002 |  | 53  
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002           |  | 55  
|Notes to Consolidated Financial Statements                                                           |  | 56  

46

---





SYMYX TECHNOLOGIES, INC.    MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company's
principal executive and principal financial officers and effected by the Company's Board, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The
Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. In making this assessment, the Company's
management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

As
allowed by guidance provided by the Securities and Exchange Commission relating to current year acquisitions, the Company's management excluded the internal controls of Symyx
IntelliChem, Inc., a wholly-owned subsidiary, from its assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 31, 2004. The 2004
consolidated financial statements of Symyx
Technologies, Inc. included $27.5 million and $26.9 million, of total assets and net assets, respectively, (consisting principally of $23.0 million of intangibles and
goodwill) as of December 31, 2004 and $24,000 of revenue and $3.1 million of net loss (including a $2.3 million charge for acquired in-process research and development) for the
year then ended in relation to Symyx IntelliChem, Inc. The Company acquired Symyx IntelliChem, Inc. in a business combination on November 30, 2004. Based on its assessment, the
Company's management believes that, as of December 31, 2004, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO.

The
Company's independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on management's assessment of the Company's internal control over
financial reporting. This report appears on page 48 of this annual report on Form 10-K.

|/s/STEVEN D. GOLDBYSteven D. Goldby
Chairman and Chief Executive Officer |  | /s/JERYL L. HILLEMANJeryl L. Hilleman
Executive Vice President and Chief Financial Officer
|------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------

47

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The
Board of Directors and Stockholders
of Symyx Technologies, Inc.

We
have audited management's assessment, included in the accompanying Symyx Technologies, Inc. Management Report on Internal Control Over Financial Reporting, that Symyx
Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).Symyx
Technologies, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As
indicated in the accompanying Symyx Technologies, Inc. Management Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the internal controls of Symyx IntelliChem, Inc., a wholly-owned subsidiary, acquired on November 30, 2004,
which is included in the 2004 consolidated financial statements of Symyx Technologies, Inc. and constituted $27.5 million and $26.9 million of total and net assets, respectively, as of
December 31, 2004 and $24,000 of revenues and $3.1 million of net loss for the year then ended. Our audit of internal control over financial reporting of Symyx Technologies, Inc.
also did not include an evaluation of the internal control over financial reporting of Symyx IntelliChem, Inc.

In
our opinion, management's assessment that Symyx Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our opinion, Symyx Technologies, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO criteria.

48

---



We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Symyx
Technologies, Inc. as of December 31, 2004 and 2003, and the related consolidated income statements and consolidated statements of stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2004 of Symyx Technologies, Inc. and our report dated March 3, 2005 expressed an unqualified opinion thereon.

|                                    |  | /s/ERNST & YOUNG LLP
|----------------------------------- |  | --------------------
|Palo Alto, California
March 3, 2005 |  |                     

49

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON CONSOLIDATED FINANCIAL STATEMENTS

The
Board of Directors and Stockholders
of Symyx Technologies, Inc.

We
have audited the accompanying consolidated balance sheets of Symyx Technologies, Inc. as of December 31, 2004 and 2003, and the related consolidated income statements
and consolidated statements of stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Symyx Technologies, Inc. at
December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Symyx Technologies, Inc.'s internal
control over financial reporting as of December 31, 2004, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 3, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Palo
Alto, California
March 3, 2005

50

---





SYMYX TECHNOLOGIES, INC.    CONSOLIDATED BALANCE SHEETS  (In thousands, except share and per share information)

|                                     |                                                                                                                                                                   | December 31,                               |       
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|ASSETS                               |                                                                                                                                                                  
|Current assets:                      |                                                                                                                                                                   |                                            |       
|                                     | Cash and cash equivalents                                                                                                                                         |                                            | $     
|                                     | Restricted cash                                                                                                                                                   |                                            |       
|                                     | Available-for-sale securities                                                                                                                                     |                                            |       
|                                     | Accounts receivable                                                                                                                                               |                                            |       
|                                     | Inventories                                                                                                                                                       |                                            |       
|                                     | Receivable from related party                                                                                                                                     |                                            |       
|                                     | Deferred tax assets, current                                                                                                                                      |                                            |       
|                                     | Interest receivable and other current assets                                                                                                                      |                                            |       
|                                     |                                                                                                                                                                   |                                            |       
|                                     |                                                                                                                                                                   | Total current assets                       |       
|Property, plant and equipment, net   |                                                                                                                                                                   |                                            | 22,679
|Goodwill                             |                                                                                                                                                                   |                                            | 9,283 
|Intangible assets, net               |                                                                                                                                                                   |                                            | 15,114
|Deferred tax and other assets        |                                                                                                                                                                   |                                            | 1,572 
|                                     |                                                                                                                                                                   |                                            |       
|                                     |                                                                                                                                                                   | Total assets                               |       
|                                     |                                                                                                                                                                   |                                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                  
|Current liabilities:                 |                                                                                                                                                                   |                                            |       
|                                     | Accounts payable and other accrued liabilities                                                                                                                    |                                            | $     
|                                     | Accrued compensation and employee benefits                                                                                                                        |                                            |       
|                                     | Advance from related party                                                                                                                                        |                                            |       
|                                     | Income taxes payable                                                                                                                                              |                                            |       
|                                     | Deferred rent                                                                                                                                                     |                                            |       
|                                     | Deferred revenue                                                                                                                                                  |                                            |       
|                                     | Warranty expense accrual                                                                                                                                          |                                            |       
|                                     |                                                                                                                                                                   |                                            |       
|                                     |                                                                                                                                                                   | Total current liabilities                  |       
|Commitments and contingencies        |                                                                                                                                                                   |                                            |       
|Stockholders' equity:                |                                                                                                                                                                   |                                            |       
|                                     | Preferred stock, $0.001 par value, 10,000,000 shares authorized, issuable in series; no shares issued and outstanding                                             |                                            |       
|                                     | Common stock, $0.001 par value, 60,000,000 shares authorized; 32,484,589 and 31,610,108 shares issued and outstanding at December 31, 2004 and 2003, respectively |                                            |       
|                                     | Additional paid-in capital                                                                                                                                        |                                            |       
|                                     | Stockholder notes receivable                                                                                                                                      |                                            |       
|                                     | Deferred stock compensation                                                                                                                                       |                                            |       
|                                     | Accumulated other comprehensive income (loss)                                                                                                                     |                                            |       
|                                     | Retained earnings (accumulated deficit)                                                                                                                           |                                            |       
|                                     |                                                                                                                                                                   |                                            |       
|                                     |                                                                                                                                                                   | Total stockholders' equity                 |       
|                                     |                                                                                                                                                                   |                                            |       
|                                     |                                                                                                                                                                   | Total liabilities and stockholders' equity |       
|                                     |                                                                                                                                                                   |                                            |       

See
accompanying notes.

51

---





SYMYX TECHNOLOGIES, INC.    CONSOLIDATED INCOME STATEMENTS  (In thousands, except per share amounts)

|                                                      |                                              | Years Ended December 31, |       
|----------------------------------------------------- | -------------------------------------------- | ------------------------ | ------
|
|Revenue:                                              |                                              |                          |       
|                                                      | Service revenue                              |                          | $     
|                                                      | Service revenue  related party              |                          |       
|                                                      | Product sales                                |                          |       
|                                                      | License fees and royalties                   |                          |       
|                                                      | License fees and royalties  related party   |                          |       
|                                                      |                                              |                          |       
|                                                      |                                              | Total revenue            |       
|                                                      |                                              |                          |       
|Operating expenses:                                   |                                              |                          |       
|                                                      | Cost of products sold                        |                          |       
|                                                      | Research and development                     |                          |       
|                                                      | Research and development  related party     |                          |       
|                                                      | Sales, general and administrative            |                          |       
|                                                      | Acquired in-process research and development |                          |       
|                                                      |                                              |                          |       
|                                                      |                                              | Total operating expenses |       
|                                                      |                                              |                          |       
|Income from operations                                |                                              |                          | 13,688
|Interest and other income                             |                                              |                          | 2,521 
|Interest and other expense                            |                                              |                          |      
|                                                      |                                              |                          |       
|Income before income tax expense                      |                                              |                          | 16,209
|Income tax expense                                    |                                              |                          | 3,327 
|                                                      |                                              |                          |       
|Net income                                            |                                              | $                        | 12,882
|                                                      |                                              |                          |       
|Basic net income per share                            |                                              | $                        | 0.40  
|                                                      |                                              |                          |       
|Shares used in computing basic net income per share   |                                              |                          | 32,067
|                                                      |                                              |                          |       
|Diluted net income per share                          |                                              | $                        | 0.38  
|                                                      |                                              |                          |       
|Shares used in computing diluted net income per share |                                              |                          | 33,872
|                                                      |                                              |                          |       

See
accompanying notes.

52

---





SYMYX TECHNOLOGIES, INC.    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  (In thousands)

|                                                            |                                                                                       | Preferred Stock      |   | Common Stock |   |   |        |   |   |    |   | Accumulated
Other
Comprehensive
Income (Loss) |         | Retained
Earnings
(Accumulated
Deficit) |   |      |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------- | - | ------------ | - | - | ------ | - | - | -- | - | --------------------------------------------- | ------- | --------------------------------------- | - | ---- | -
|
|
|Balance at January 1, 2002                                  |                                                                                       |                     |   | $            |  |   | 30,614 |   | $ | 31 |   | $                                             | 148,366 |                                         | $ | (410 | )
|Repurchase of common stock                                  |                                                                                       |                     |   |              |  |   | (2     | ) |   |   |   |                                               | (1      | )                                       |   |     |  
|Issuance of common stock on exercise of options             |                                                                                       |                     |   |              |  |   | 216    |   |   |   |   |                                               | 905     |                                         |   |     |  
|Issuance of common stock under employee share purchase plan |                                                                                       |                     |   |              |  |   | 92     |   |   |   |   |                                               | 1,055   |                                         |   |     |  
|Repayment of notes receivable                               |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   | 6    |  
|Amortization of deferred stock compensation                 |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   |     |  
|Deferred stock compensation related to terminated employees |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               | (75     | )                                       |   |     |  
|Tax benefit from employee stock option plans                |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               | 3,963   |                                         |   |     |  
|Comprehensive income:                                       |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            | Net income for the year ended December 31, 2002                                       |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on foreign currency translation                                |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on available- for-sale securities, net of income taxes of $247 |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                       | Comprehensive income |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|Balance at December 31, 2002                                |                                                                                       |                     |   |              |  |   | 30,920 |   |   | 31 |   |                                               | 154,213 |                                         |   | (404 | )
|Repurchase of common stock                                  |                                                                                       |                     |   |              |  |   | (2     | ) |   |   |   |                                               | (2      | )                                       |   |     |  
|Issuance of common stock on exercise of options             |                                                                                       |                     |   |              |  |   | 579    |   |   | 1  |   |                                               | 6,006   |                                         |   |     |  
|Issuance of common stock under employee share purchase plan |                                                                                       |                     |   |              |  |   | 113    |   |   |   |   |                                               | 1,115   |                                         |   |     |  
|Repayment of notes receivable                               |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   | 270  |  
|Issuance of options to consultants for services received    |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               | 94      |                                         |   |     |  
|Amortization of deferred stock compensation                 |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   |     |  
|Deferred stock compensation related to terminated employees |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               | (42     | )                                       |   |     |  
|Tax benefit from employee stock option plans                |                                                                                       |                     |   |              |  |   |       |   |   |   |   |                                               | 776     |                                         |   |     |  
|Comprehensive income:                                       |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            | Net income for the year ended December 31, 2003                                       |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on foreign currency translation                                |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on available- for-sale securities, net of income taxes of $61  |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                       | Comprehensive income |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|Balance at December 31, 2003 (carryforward)                 |                                                                                       |                     |   | $            |  |   | 31,610 |   | $ | 32 |   | $                                             | 162,160 |                                         | $ | (134 | )
|                                                            |                                                                                       |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  

53

---



SYMYX TECHNOLOGIES, INC.    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  (Continued)  (In thousands)

|                                                            |                                                                                      | Preferred Stock      |   | Common Stock |   |   |        |   |   |    |   | Accumulated
Other
Comprehensive
Income (Loss) |         | Retained
Earnings
(Accumulated
Deficit) |   |      |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------- | - | ------------ | - | - | ------ | - | - | -- | - | --------------------------------------------- | ------- | --------------------------------------- | - | ---- | -
|
|
|Balance at December 31, 2003 (brought forward)              |                                                                                      |                     |   | $            |  |   | 31,610 |   | $ | 32 |   | $                                             | 162,160 |                                         | $ | (134 | )
|Issuance of common stock on exercise of options             |                                                                                      |                     |   |              |  |   | 742    |   |   |   |   |                                               | 10,574  |                                         |   |     |  
|Issuance of common stock under employee share purchase plan |                                                                                      |                     |   |              |  |   | 133    |   |   |   |   |                                               | 1,433   |                                         |   |     |  
|Repayment of notes receivable                               |                                                                                      |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   | 134  |  
|Issuance of stock options in Connection with acquisition    |                                                                                      |                     |   |              |  |   |       |   |   |   |   |                                               | 1,041   |                                         |   |     |  
|Amortization of deferred stock compensation                 |                                                                                      |                     |   |              |  |   |       |   |   |   |   |                                               |        |                                         |   |     |  
|Issuance of options to consultants for service received     |                                                                                      |                     |   |              |  |   |       |   |   |   |   |                                               | 500     |                                         |   |     |  
|Tax benefit from employee stock option plans                |                                                                                      |                     |   |              |  |   |       |   |   |   |   |                                               | 6,138   |                                         |   |     |  
|Comprehensive income:                                       |                                                                                      |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            | Net income for the year ended December 31, 2004                                      |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on foreign currency translation                               |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            | Unrealized gain (loss) on available- for-sale securities, net of income taxes of $28 |                      |  |              |   |  |        |  |   |    |  |                                               |         |                                        |   |      | 
|                                                            |                                                                                      |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                      | Comprehensive income |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|                                                            |                                                                                      |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  
|Balance at December 31, 2004                                |                                                                                      |                     |   | $            |  |   | 32,485 |   | $ | 32 |   | $                                             | 181,846 |                                         | $ |     |  
|                                                            |                                                                                      |                      |   |              |   |   |        |   |   |    |   |                                               |         |                                         |   |      |  

See accompanying notes.

54

---





SYMYX TECHNOLOGIES, INC.    CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)

|                                                                                  |                                              | Years Ended December 31,                       |         
|--------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------- | --------
|
|OPERATING ACTIVITIES                                                              |                                              |                                                |         
|Net income                                                                        |                                              | $                                              | 12,882  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                              |                                                |         
|                                                                                  | Depreciation and amortization                |                                                |         
|                                                                                  | Acquired in-process research and development |                                                |         
|                                                                                  | Amortization of intangible assets            |                                                |         
|                                                                                  | Stock-based compensation                     |                                                |         
|                                                                                  | Gain on sale of fixed assets                 |                                                |         
|                                                                                  | Deferred income taxes                        |                                                |         
|                                                                                  | Tax benefit from employee stock transactions |                                                |         
|                                                                                  | Changes in assets and liabilities:           |                                                |         
|                                                                                  |                                              | Accounts receivable                            |         
|                                                                                  |                                              | Inventories                                    |         
|                                                                                  |                                              | Receivable from related party                  |         
|                                                                                  |                                              | Interest receivable and other current assets   |         
|                                                                                  |                                              | Other long-term assets                         |         
|                                                                                  |                                              | Accounts payable and other accrued liabilities |         
|                                                                                  |                                              | Accrued compensation and employee benefits     |         
|                                                                                  |                                              | Advance from related party                     |         
|                                                                                  |                                              | Income taxes payable                           |         
|                                                                                  |                                              | Deferred rent                                  |         
|                                                                                  |                                              | Deferred revenue                               |         
|                                                                                  |                                              | Warranty expense accrual                       |         
|                                                                                  |                                              |                                                |         
|Net cash provided by operating activities                                         |                                              |                                                | 22,925  
|                                                                                  |                                              |                                                |         
|INVESTING ACTIVITIES                                                              |                                              |                                                |         
|Purchases of property, plant and equipment, net                                   |                                              |                                                | (4,470  
|Purchases of available-for-sale securities                                        |                                              |                                                | (113,936
|Proceeds from maturities of available-for-sale securities                         |                                              |                                                | 101,326 
|Proceeds from sales of available-for-sale securities                              |                                              |                                                | 11,987  
|Acquisition, net of cash acquired                                                 |                                              |                                                | (26,873 
|Acquisition of technology                                                         |                                              |                                                | (750    
|                                                                                  |                                              |                                                |         
|Net cash used in investing activities                                             |                                              |                                                | (32,716 
|                                                                                  |                                              |                                                |         
|FINANCING ACTIVITIES                                                              |                                              |                                                |         
|Proceeds from issuance of common stock, net of repurchases                        |                                              |                                                | 12,141  
|                                                                                  |                                              |                                                |         
|Net cash provided by financing activities                                         |                                              |                                                | 12,141  
|                                                                                  |                                              |                                                |         
|Effect of foreign exchange rate changes on cash and cash equivalents              |                                              |                                                | (1      
|                                                                                  |                                              |                                                |         
|Net increase (decrease) in cash and cash equivalents                              |                                              |                                                | 2,349   
|Cash and cash equivalents at beginning of period                                  |                                              |                                                | 17,110  
|                                                                                  |                                              |                                                |         
|Cash and cash equivalents at end of period                                        |                                              | $                                              | 19,459  
|                                                                                  |                                              |                                                |         
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                  |                                              |                                                |         
|Income taxes paid (refunded)                                                      |                                              | $                                              | (243    
|                                                                                  |                                              |                                                |         
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES            |                                              |                                                |         
|Employee stock options assumed in connection with acquisition                     |                                              | $                                              | 1,041   
|                                                                                  |                                              |                                                |         

See accompanying notes.

55

---





SYMYX TECHNOLOGIES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Summary of Significant Accounting Policies

Business and Basis of Presentation

Symyx Technologies, Inc. (the "Company" or "Symyx") develops and applies high-throughput experimentation to the discovery of innovative
materials for chemical and petrochemical, pharmaceutical development, electronics, consumer goods, and automotive customers. Symyx works with companies seeking to transform and accelerate their search
for better products and processes through research collaborations, Discovery Tools sales, and the license of materials, intellectual property, and software.

Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Symyx Discovery Tools, Inc., incorporated in
California, Symyx Technologies International, Inc., incorporated in Delaware, Symyx IntelliChem, Inc., incorporated in Oregon, and Symyx Technologies AG, incorporated in Switzerland. All
significant intercompany balances and transactions have been eliminated on consolidation.

Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and
expenses. Estimates include future warranty expenditures and product life cycles, and assumptions such as the elements comprising a software arrangement, including the distinction between
upgrades/enhancements and new products; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our
financial statements or tax returns; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management's estimates
and assumptions. For example, the actual results with regard to warranty expenditures could have a material unfavorable impact on the Company if system failures or the cost to repair a system is
greater than what the Company has used in estimating the warranty expense accrual.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period presentations. Amounts received from a related party reported as
accounts payable and deferred revenue in the previous period have been reclassified as an advance from a related party. Segment revenue for prior periods has been reclassified to conform to the
current period presentations.

Cash and Cash Equivalents

The Company considers all highly liquid investments, with maturities of three months or less on the date of purchase, to be cash equivalents. Cash equivalents are
carried at fair value.

Available-For-Sale Investments

Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such determination as of each balance sheet date.
The Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are stated at fair value, with the
unrealized gains and losses, net of tax, reported in other comprehensive income. Realized gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in

56

---



interest
income. The estimated fair value amounts have been determined by the Company using available market information.

The
amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. The cost of
securities sold is based on the specific identification method. Interest and dividends are included in interest income.

The
Company invests its excess cash primarily in deposits with banks and short-term and medium-term marketable securities. These investments primarily include
corporate notes, money market funds, and U.S. treasury notes. By policy, the Company restricts its investments to long-term bank obligations rated "A" or higher and short-term
obligations rated "P1" or higher by Moody's or "A1" or higher by Standard & Poor's ("S&P"), and corporate obligations, including intermediate term notes rated "A" or higher, and commercial
paper rated "P1" or higher by Moody's, or "A1" or higher by S&P. By policy, the Company restricts its investments to instruments with maturities of less than twenty-four months.

The
following is a summary of the fair value of cash, cash equivalents and available-for-sale securities (in thousands):

December 31,2004

2003Cash and cash equivalents

$
19,459

$
17,110U.S. corporate debt securities


117,082


120,544U.S. Treasury securities





1,044Total

$
136,541

$
138,698


Above
amounts are included in the following line items on the consolidated balance sheet (in thousands):

December 31,2004

2003Cash and cash equivalents

$
19,459

$
17,110Available-for-sale securities


117,082


121,588Total

$
136,541

$
138,698


Realized
losses on the sale of available-for-sale securities for the year ended December 31, 2004 were minimal. The Company had no realized gains or losses
for the years ended December 31, 2003 and 2002. Unrealized gains and losses for the years ended December 31, 2004, 2003 and 2002 are included in Note 1 "Comprehensive Income."

The
fair value of the Company's investment in debt securities, by contractual maturity, is as follows (in thousands):

December 31,2004

2003Due in less than 1 year

$
104,764

$
65,971Due in 1 to 2 years


12,318


55,617Total

$
117,082

$
121,588


57

---



Unrealized
losses of available-for-sale securities by duration and fair value of investments are as follows (in thousands):

December 31,2004

2003Unrealized
Losses

Related Fair
Value of
Investments

Unrealized
Losses

Related Fair
Value of
InvestmentsLess than 12 months

$
(442
)
$
87,607

$
(70
)
$
59,67112 months or greater


(69
)

21,437





Total

$
(511
)
$
109,044

$
(70
)
$
59,671


At
December 31, 2004 unrealized losses of $511,000 were all related to U.S. corporate debt securities. Unrealized losses are primarily attributable to changes in interest rates.
Of the unrealized losses of $511,000 at December 31, 2004, $69,000 exceeded twelve months. The Company does not believe any unrealized losses represent an
other-than-temporary impairment based on its evaluation of available evidence as of December 31, 2004. The largest single unrealized loss on any security was only
$44,000 and represented less than 1% of the value at which the security was carried.

Restricted Cash

In connection with a lease transaction (See Note 3 "Commitments and Contingencies   Leases.") acquired as part of the business
combination with IntelliChem (See Note 7 "Business Combination."), the Company has restricted cash at December 31, 2004 of approximately $104,000 representing a security deposit required
by the lease agreement for its Bend, Oregon facility. The
requirement of retaining the restricted cash will expire on March 31, 2005. There was no restricted cash at December 31, 2003.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation of equipment is computed on the straight-line method using a life of three to five
years for financial reporting purposes and by accelerated methods for income tax purposes. Depreciation of buildings is computed on the straight-line method using a life of thirty years
for financial reporting purposes. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets for financial reporting purposes.

Property,
plant and equipment consists of the following (in thousands):

December 31,2004

2003Machinery and equipment

$
21,216

$
19,057Computers and software


3,236


3,435Land and building


3,551


3,551Leasehold improvements


25,033


23,785Construction in progress


987


1,406Furniture and fixtures


1,032


97055,055


52,204Less accumulated depreciation and amortization


(32,376
)

(26,523
)Property, plant and equipment, net

$
22,679

$
25,681


58

---



At
December 31, 2004, no property, plant and equipment was pledged as collateral against borrowings. Amortization of leasehold improvements is included in depreciation expense.
Depreciation expense was $7,951,000, $7,797,000, and $8,818,000 in 2004, 2003, and 2002, respectively.

Long-Lived Assets

The Company routinely evaluates the carrying value of its long-lived assets. The Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that assets may be impaired and the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of those
assets. To date, no impairment charges have been recognized.

Revenue Recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements, SAB No. 104,Revenue Recognition, the American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,Software Revenue Recognition, as amended by SOP
98-9,Modification of SOP 97-2, Software Revenue Recognition, Financial Accounting Standards Board Technical Bulletin
90-1,Accounting for Separately Priced Extended Warranty and product Maintenance Contracts, and other authoritative accounting literature.
The Company generates revenue from services provided under research collaborations, the sale of products, the license of software, the provision of support and maintenance services, and the license of
intellectual property. It is possible for the Company's customers to work with it in multiple areas of its business and contracts may include multiple elements of service revenue, product revenue, and
license revenue. In determining the basis for revenue recognition, the Company first determines the fair value of any extended warranty services and defers this revenue to be recognized over the
service period. For those contracts that involve multiple element deliverables, the Company identifies all deliverables, determines the units of accounting and allocates revenue between the units of
accounting in accordance with the Emerging Issues Task Force consensus on Issue 00-21,Multiple-Deliverable Revenue Arrangements. ("EITF
00-21"). In an arrangement that includes software that is more than incidental
to the products or services as a whole, the Company recognizes revenue from the software and software-related elements, as well as any non-software deliverable(s) for which a software
deliverable is essential to its functionality, in accordance with SOP 97-2.

Service Revenue

The Company recognizes service revenue from research collaboration agreements, software consulting, and support and maintenance agreements as earned based upon
the performance requirements of the agreements. Payments received prior to performance are deferred and recognized as revenue when earned over future performance periods. Collaboration agreements
specify minimum levels of research effort required to be performed by the Company. Payments received under research collaboration agreements are not refundable if the research effort is not
successful. Direct costs associated with research collaborations are included in research and development expense. Software consulting agreements specify the number of days of consulting services to
be provided by the Company. Support and maintenance agreements specify the term of the product maintenance and the nature of the services to be provided by the Company during the term. Direct costs
associated with software consulting and support and maintenance were immaterial to date and therefore were also included in research and development expense.

Non-refundable
up-front payments received in connection with research and development collaboration agreements, including technology access fees, are deferred and
recognized on a straight-line

59

---



basis
over the relevant periods specified in the agreement, generally the research term. Revenue from milestone payments, which are substantially at risk until the milestones are completed, is
recognized upon completion of these milestone events. Milestone payments to date have been immaterial.

Extended
product maintenance contracts, which typically provide both extended warranty coverage and product maintenance services, are separately priced from the product, and are
recognized as revenue on a straight-line basis over the term of the coverage. The Company's product related software licenses may provide for technical support, bug fixes and rights to
unspecified upgrades on a when-and-if-available basis for periods defined within the contract. Revenue related to this post contract customer support is deferred
and recognized over the term of the contracted support.

Product Sales

Product sales revenue includes sales of Discovery Tools hardware and the license of associated software. The Company's Discovery Tools systems are typically
delivered under multiple-element arrangements, which include hardware, software and intellectual property licenses, and maintenance. A determination is made for each system delivered as to whether
software is incidental to the system as a whole. If software is not incidental to the Discovery Tools system as a whole, revenue from these arrangements is recognized in accordance with American
Institute of Certified Public Accountants Statement of Position 97-2,Software Revenue Recognition("SOP 97-2"), as amended. If
software is incidental to the Discovery Tools system, revenue from the sale of the Discovery Tools system is earned and recognized when persuasive evidence of an arrangement exists, delivery of the
product has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. This is generally upon shipment, transfer of
title to and acceptance by the customer of the hardware and associated licenses to software and intellectual property, unless there are extended payment terms. The Company considers all arrangements
with payment terms extending beyond twelve months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. In multiple
element arrangements, the Company uses the residual method to allocate revenue to delivered elements once it has established fair value for all undelivered elements. Payments received in advance under
these arrangements are recorded as deferred revenue until earned.

An
accrual is established for warranty expenses at the time the associated revenue is recognized. Shipping and insurance costs associated with the sale of discovery tools systems are not
material and are included in sales, general and administrative costs. For the years ended December 31, 2004, 2003, and 2002, shipping and insurance costs associated with the sale of discovery
tools systems were immaterial.

Software License Fees

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable.
The Company enters into certain arrangements where it is obligated to deliver multiple products and/or services (multiple elements). In these transactions, the Company allocates the total revenue
among the elements based on the sales price of each element when sold separately (vendor-specific objective evidence).

The
amount of revenue allocated to undelivered elements is based on the vendor-specific objective evidence of fair value for those elements using the residual method. Under the residual
method, the total fair value of the undelivered elements, as indicated by vendor-specific objective evidence, is recorded as unearned, and the difference between the total arrangement fee and the
amount recorded as unearned for the undelivered elements is recognized as revenue related to delivered elements. If evidence of the fair

60

---



value
of one or more undelivered elements does not exist, the total revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

Revenue
from multi-year licensing arrangements are accounted for as subscriptions, with billings recorded as unearned revenue and recognized as revenue ratably over the
billing coverage period. Certain multi-year licensing arrangements include rights to receive future versions of software product on a
when-and-if-available basis.

The
Company considers all arrangements with payment terms longer than twelve months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer, provided all the other revenue recognition criteria have been met.

Intellectual Property License Fees and Royalties

Amounts received from third parties for licenses to the Company's intellectual property are recognized when earned under the terms of the agreements. Revenue is
recognized upon transfer of the license unless the Company has continuing obligations for which fair value cannot be established, in which case the revenue is recognized over the period of the
obligation. If there are extended payment terms, license fee revenue is recognized as these payments become due. The Company considers all arrangements with payment terms extending beyond
12 months not to be fixed or determinable. If there is a provision in the licensing agreement for a variable fee in addition to a non-refundable minimum amount, the amount of the
non-refundable minimum guarantee is recognized upon transfer of the license unless the Company has continuing obligations for which fair value cannot be established and the amount of the
variable fee in excess of the guaranteed minimum is recognized as revenue when it is fixed and determinable.

Royalty
revenue is recorded based on reported sales by third party licensees of products containing the Company's software and intellectual property. If there are extended payment terms,
royalty revenues are recognized as these payments become due. Non-refundable royalties, for which there are no further performance obligations, are recognized when due under the terms of
the agreements.

61

---





Amounts received from third parties for options to license certain technology or enter collaborative arrangements upon specified terms are deferred until either
the option is exercised or the option right expires.

Concentration of Revenue

During the years ended December 31, 2004, 2003, and 2002 the following customers contributed more than 10% of the Company's total revenue for the year (in
thousands):

Years Ended December 31,2004

2003

2002Eli Lilly and Company

$
132

$
275

$
10,419ExxonMobil


45,016


21,945


12,136The Dow Chemical Company


4,420


4,350


8,650Merck


3,553


8,410


5,876Undisclosed Partner


2,427


6,657


6,706Total

$
55,548

$
41,637

$
43,787


The
revenue from the above customers has been included in the following reportable segments for the years ended December 31, 2004, 2003, and 2002 (in thousands):

Years Ended December 31,2004

2003

2002Industry Collaborations

$
30,970

$
26,731

$
18,296Discovery Tools


16,797


11,113


24,726Intellectual Property Licensing


3,100


2,850


Software


4,681


943


765Total

$
55,548

$
41,637

$
43,787


The
revenue from the above customers has been included in the Consolidated Income Statements as follows (in thousands):

Years Ended December 31,2004

2003

2002Service revenue

$
28,456

$
25,297

$
23,135Product sales


15,649


8,350


20,566License fees and royalties


11,443


7,990


86Total

$
55,548

$
41,637

$
43,787


Inventory

Work in process inventory consists of customized Discovery Tools systems in the process of being built. Finished goods inventory consists of customized Discovery
Tools systems that have been finished but are pending shipment to customers. Inventories are carried at the lower of cost or market, determined on a

62

---



specific
identification basis. The following table summarizes the components of the Company's inventory balance (in thousands):

December 31,2004

2003Work in Process

$
2,579

$
1,960Finished Goods





1,783Total

$
2,579

$
3,743


Warranty expense accrual

The Company offers a warranty on each Discovery Tool System shipped. The specific terms and conditions of these warranties vary depending upon the product sold
and country in which the Company does business. However they typically include coverage for parts and labor and software bug fixes, for a specified period (typically one year). The Company estimates
the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's
warranty liability include the number of
installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary.

Changes
in the Company's warranty accrual during the year ended December 31, 2004 are as follows (in thousands):

Balance as of January 1, 2004

$
1,800New warranties issued during the period


421Costs incurred during the period on specific systems


(602
)Changes in liability for pre-existing warranties during the period, including expirations


(966
)Balance as of December 31, 2004

$
653


Goodwill

Goodwill will be tested using a fair-value-based approach for impairment on at least an annual basis or more frequently if indicators of potential
impairment exist. No impairment of goodwill has been identified during any of the periods presented.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from four to seven years. The Company
evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All
of the Company's intangible assets
are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented.

Research and Development

Symyx's policy is to expense as incurred all costs of research and development, including direct and allocated expenses, related both to costs incurred on its own
behalf and on behalf of its customers. The

63

---



types
of costs classified as research and development expense include salaries of technical staff, consultant costs, chemical and scientific supplies costs, facilities rental, and utilities costs
related to laboratories and offices occupied by technical staff, depreciation on equipment and facilities used by technical staff and outside services such as machining and third-party research and
development costs.

Income Taxes

Income taxes have been provided using the liability method. Deferred tax assets or liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. The Company provides a valuation allowance against net
deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

Software development costs

Statement of Financial Accounting Standards No. 86,Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. As the Company's business model has
evolved, it has commenced bundling with the Discovery Tools it sells, licenses to software that was originally developed for internal research and development purposes. Due to the unique nature of the
Discovery Tool systems, and the required product development process, technological feasibility is established only upon the completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has charged all such costs to research and development
expense in the period incurred.

Stock-Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the shares on the date
of grant. As allowed under the Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation("SFAS 123"),
the Company has elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees("APB 25")
and related interpretations in accounting for stock awards to employees. Accordingly, no compensation expense is recognized in the Company's financial statements in connection with stock options
granted to employees with exercise prices not less than fair value. Deferred compensation for options granted to employees is determined as the difference between the deemed fair market value of the
Company's common stock on the date options were granted and the exercise price. For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be
amortized to expense over the options' vesting periods.

Stock
compensation expense for options granted to non-employees has been determined in accordance with SFAS 123 and EITF 96-18 using the Black-Scholes
option pricing model. Stock compensation expense for options granted to non-employees is periodically re-measured as the underlying options vest.

Pro
forma net loss information is required by SFAS 123, computed as if the Company had accounted for its employee stock options granted under the fair value method of that
Statement. The fair value for options granted prior to the Company's initial public offering in November 1999 was estimated at the date of grant using the minimum value method. Options granted
following the Company's November 1999

64

---



initial
public offering have been valued using the Black-Scholes method with valuation assumptions as follows:

2004

2003

2002Expected dividend yield

0
%
0
%
0
%Expected stock price volatility

0.53

0.67

0.74Risk-free interest rate

3.0
%
2.2
%
3.7
%Expected life (years)

3.5

3.5

3.5


The
fair value of issuances under the Employee Stock Purchase Plan is estimated on the issuance date using the Black-Scholes model assuming no expected dividends and the following
weighted average assumptions for issuance made in 2004, 2003, and 2002.

2004

2003

2002Expected stock price volatility

0.51

0.48

0.55Risk-free interest rate

1.7
%
1.5
%
2.1
%Expected life (years)

1.62

0.75

0.71


Had
the Company valued its stock options and stock purchase rights according to the fair value provisions of SFAS 123, pro forma net income (loss) and pro forma net income (loss)
per share would have been as follows (in thousands, except per share data):

Years Ended December 31,2004

2003

2002Net income (loss):As reported

$
12,882

$
5,741

$
5,286Add: Stock-based employee compensation expense included in reported net income


40


43


168Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects


(13,057
)

(15,171
)

(22,269
)Pro forma

$
(135
)
$
(9,387
)
$
(16,815
)Basic net income (loss) per share:As reported

$
0.40

$
0.18

$
0.17Pro forma

$
*

$
(0.30
)
$
(0.55
)Diluted net income (loss) per share:As reported

$
0.38

$
0.18

$
0.17Pro forma

$
*

$
(0.30
)
$
(0.55
)


---

Net Income Per Share

Basic net income per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to
repurchase. Diluted net income per

65

---



share
has been calculated based on the shares used in the calculation of basic net income per share plus the dilutive effect of stock options and shares subject to repurchase by the Company.

The
following table presents the calculation of basic and diluted net income per share (in thousands, except per share data):

|                                                                           |  | Years Ended December 31, |       
|-------------------------------------------------------------------------- |  | ------------------------ | ------
|
|Net income                                                                 |  | $                        | 12,882
|                                                                           |  |                          |       
|Weighted-average shares of common stock outstanding                        |  |                          | 32,067
|Less: weighted-average shares subject to repurchase                        |  |                          |      
|                                                                           |  |                          |       
|Weighted-average shares used in computing basic net income per share       |  |                          | 32,067
|Dilutive effect of employee stock options, using the treasury stock method |  |                          | 1,805 
|Weighted-average shares subject to repurchase                              |  |                          |      
|                                                                           |  |                          |       
|Weighted-average shares used in computing diluted net income per share     |  |                          | 33,872
|                                                                           |  |                          |       
|Basic net income per share                                                 |  | $                        | 0.40  
|                                                                           |  |                          |       
|Diluted net income per share                                               |  | $                        | 0.38  
|                                                                           |  |                          |       

The
Company has excluded 3,160,000, 2,768,000, and 3,699,000 shares of outstanding stock options from the calculation of diluted net income per share in 2004, 2003, and 2002,
respectively, because all such securities are anti-dilutive for the respective periods.

Employee Savings Plan

The Company has a savings plan in the United States that qualifies under Section 401(k) of the Internal Revenue Code. Participating U.S. employees may
contribute up to 60% of their pretax salary, but not more than statutory limits. In 2004, the Company began contributing 25 cents for each dollar a participant contributes in this plan, with a maximum
matching contribution of 1% of a participant's
earnings. Matching contributions for the plan were $250,000 in fiscal 2004. Matching contributions are invested proportionate to each participant's voluntary contributions in the investment options
provided under the plan. Investment options in the plan do not include Symyx common stock.

Foreign Currency Translation

The financial statements of the Company's wholly owned subsidiary, Symyx Technologies AG, are measured using the local currency as the functional currency. Assets
and liabilities of the subsidiary are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are recorded as a separate component of stockholders' equity
as accumulated other comprehensive income and have not been significant to date. Income and expense items are translated at average monthly rates of exchange.

Impairment of Long-Lived Assets

The Company accounts for the impairment and disposal of long-lived assets utilizing Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets("SFAS 144"). SFAS 144 requires that long-lived
assets, such as property, plant and equipment, and

66

---



purchased
intangible assets subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
recoverability of an asset is measured by a comparison of the carrying amount of an asset to its estimated undiscounted future cash flows expected to be generated. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would
be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Comprehensive Income

The components of other comprehensive income consist of unrealized gains and losses on available-for-sale securities and a foreign
currency translation adjustment,
both net of tax. Comprehensive income has been disclosed in the statement of stockholders' equity for all periods presented.

The
components of accumulated other comprehensive income at December 31, 2004, 2003, and 2002 are as follows (in thousands):

|                                                                    |  | Foreign
Currency
Translation
Adjustments |     | Unrealized
Gain (Loss) On
Available-For-
Sale Securities |   | Total |  
|------------------------------------------------------------------- |  | ---------------------------------------- | --- | -------------------------------------------------------- | - | ----- | -
|Balance at January 1, 2002                                          |  | $                                        | (12 | )                                                        | $ | 528   |  
|Foreign currency translation adjustment                             |  |                                          | (1  | )                                                        |   |      |  
|Unrealized loss on available-for-sale securities, net of $247 taxes |  |                                          |    |                                                          |   | (395  | )
|                                                                    |  |                                          |     |                                                          |   |       |  
|Balance at December 31, 2002                                        |  |                                          | (13 | )                                                        |   | 133   |  
|Foreign currency translation adjustment                             |  |                                          | 2   |                                                          |   |      |  
|Unrealized loss on available-for-sale securities, net of $61 taxes  |  |                                          |    |                                                          |   | (91   | )
|                                                                    |  |                                          |     |                                                          |   |       |  
|Balance at December 31, 2003                                        |  |                                          | (11 | )                                                        |   | 42    |  
|Foreign currency translation adjustment                             |  |                                          | (1  | )                                                        |   |      |  
|Unrealized loss on available-for-sale securities, net of $28 taxes  |  |                                          |    |                                                          |   | (519  | )
|                                                                    |  |                                          |     |                                                          |   |       |  
|Balance at December 31, 2004                                        |  | $                                        | (12 | )                                                        | $ | (477  | )
|                                                                    |  |                                          |     |                                                          |   |       |  

Effect of New Accounting Pronouncements

Share-Based Payment

On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised 2004), Share-Based
Payment, ("SFAS 123(R)"), which is a revision of FASB Statement No. 123,Accounting for Stock-Based
Compensation. SFAS 123(R) supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, ("APB 25"), and
amends FASB SFAS 95,Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.

SFAS 123(R)
must be adopted by the Company no later than July 1, 2005.

67

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SFAS 123(R) permits public companies to adopt its requirements using one of two methods:



The
Company expects to adopt Statement 123(R) using the modified-prospective method.

As
permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)'s fair value method will have a significant impact on the Company's result of operations, although it will
have no impact on the Company's overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the
disclosure of pro forma net income (loss) and earnings per share in Note 1 to the consolidated financial statements ("Stock Based Compensation"). SFAS 123(R) also requires the benefits
of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company is currently evaluating the impact on its financial statements upon the adoption of
SFAS 123(R).

The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments

In March 2004, the FASB ratified the recognition and measurement guidance and certain disclosure requirements for impaired securities as described in
Emerging Issues Task Force (EITF) Issue No. 03-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.EITF Issue No. 03-1 provides new guidance for determining and recording impairment for both debt and equity securities. It also requires
additional disclosure for declines in investments that are deemed to be temporary under the standard. In September 2004, the FASB approved the issuance of a FASB Staff Position to delay certain
measurement and recognition guidance contained in EITF Issue No. 03-1. The Company will evaluate the effect, if any, of EITF Issue No. 03-1, when final guidance
is released. Disclosures required under EITF Issue No. 03-1 are included in Note 1 of the Notes to the Consolidated Financial Statements.

Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock

In July 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 02-14,Whether an
Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock, which provides guidance regarding application of the equity method of accounting
to investments other than common stock. EITF Issue No. 02-14 applies to reporting periods beginning after

68

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September 15,
2004. The adoption of EITF Issue No. 02-14 did not have a material impact on the Company's financial statements.

Inventory Costs

In November 2004, the FASB issued SFAS No. 151, InventoryCosts   an amendment of ARB
No. 43, Chapter 4. ("SFAS 151"). SFAS 151 amends ARB 43, Chapter 4 to clarify that "abnormal" amounts of idle facility expense, freight, handling costs and
spoilage should be recognized as current period charges. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not
anticipate that the adoption of this standard will have a material impact on the Company's financial statements.

Exchanges of Nonmonetary Assets

In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assets, an amendment of APB
No. 29. ("SFAS 153"). SFAS 153 amends ARB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. The Company does not anticipate that the adoption of this standard will have a material impact on the Company's financial statements.

Accounting for Preexisting Relationship between the Parties to a Business Combination

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-1,Accounting for
Preexisting Relationship between the Parties to a Business Combination, which provides guidance regarding separate accounting when two parties that have a
pre-existing contractual relationship enter into a business combination. EITF Issue No. 04-01 applies to reporting periods beginning after October 13, 2004. The
adoption of EITF Issue No. 04-1 is not expected to have a material impact on the Company's financial statements.

Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004

On December 21, 2004, the FASB issued FASB Staff Position 109-1 ("FAS FSP 109-1"),Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, which
provides guidance on the application of FASB Statement 109,Accounting for Income Taxes, to the provision within the American Job Creation Act of 2004
that provides a tax deduction on qualified production activities. FAS FSP 109-1 applies to reporting periods beginning after December 21, 2004. The adoption of FAS FSP
109-1 is not expected to have a material impact on the Company's financial statements.

The Effect of Contingently Convertible Instruments on Diluted Earnings per Share

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-8,The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share, which provides guidance regarding when contingently convertible instruments should be included in diluted
earnings per share. EITF Issue No. 04-8 applies to reporting periods ending after December 15, 2004. The adoption of EITF Issue No. 04-8 is not expected to
have a material impact on the Company's financial statements.

69

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Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds

In October 2004, the FASB ratified Emerging Issues Task Force (EITF) consensus on Issue No. 04-10,Determining
Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds, which provides guidance regarding how an enterprise should evaluate the aggregation
criteria in paragraph 17 of FASB Statement 131 when determining whether operating segments that do not meet the quantitative thresholds may be aggregated in accordance with paragraph 19
of FASB Statement 131. The effective date of EITF Issue No. 04-10 has not been determined but early application is permitted. The adoption of EITF Issue No. 04-10
is not expected to have a material impact on the Company's financial statements.

2.    Research and Development Arrangements

The Company has entered into a number of multi-year research and development collaborations to perform research for partners in exclusive fields over
multiple years. The major collaborative arrangements have similar contractual terms and are non-cancelable other than for material breach or certain other conditions. Under the
collaborative arrangements, the Company is responsible for performing research at levels defined in the agreement, including synthesis, screening, and informatics. The partner, in turn, is entitled to
develop and commercialize materials discovered in or under collaboration within the defined field. The Company typically receives research and development funding at specified amounts per full time
equivalent employee working on the project and is entitled to receive royalties on the sale of any products commercialized under the agreement or payments on the achievement of specified research
milestones. The agreements also contain procedures by which the Company and the partner will determine royalty rates for the sale or license of products under the agreements.

The
table below indicates some of the significant collaborative partners for whom the Company conducted research and development in 2004, together with the primary focus of the
collaborations. In addition to these partners the Company has a number of other undisclosed partners, none of which individually constituted more than 5% of total revenue in 2004:

|Partner               |  | Current Research
Contract Ends |  | Primary focus of current collaborative efforts                
|--------------------- |  | ------------------------------ |  | --------------------------------------------------------------
|BP                    |  | 12/31/2005                     |  | Catalysts for certain commodity chemicals                     
|Dow Chemical          |  | 12/31/2009                     |  | Catalysts for Polyolefins and other chemicals and formulations
|ExxonMobil            |  | 5/31/2008                      |  | Catalysts for certain commodity chemicals including olefins   
|Undisclosed Partner 1 |  | 1/31/2005                      |  | Catalysts for automotive applications                         
|Undisclosed Partner 2 |  | 5/18/2005                      |  | Polymeric materials                                           

The
Company's collaborative agreements may provide for a variety of structures with respect to ownership of inventions conceived and reduced to practice in connection with activities
under the agreements, but under a typical collaborative arrangement, the Company owns all inventions conceived and reduced to practice solely by the Company and all know-how and
intellectual property rights related thereto; and the Company and the collaborative partner jointly own all inventions made, conceived, reduced to practice, or otherwise developed jointly by employees
or consultants of the Company and those of the collaborative partner in connection with activities under the agreement and all know-how and intellectual property rights related thereto.
The Company's collaborative partner typically receives exclusive rights in the defined field of the collaborative agreement.

70

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The
agreements are typically cancelable only in the event of breach by either party or certain other conditions. As of December 31, 2004, the Company had committed funding from
existing collaborative partners, excluding milestone payments that are contingent upon the success of the research, of over $160 million. Revenue from collaborative partners who individually
comprised more than 10% of revenue is included within Note 1 "Concentration of Revenue."

In
2003, Symyx entered into an Alliance, Technology Transfer and License Agreement effective April 1, 2003 with ExxonMobil Research and Engineering Company under which the Company
is contracted to provide research services, develop and sell Discovery Tools Systems, and license its software and intellectual property. The ExxonMobil alliance provides Symyx with an expected
five-year revenue stream of over $200 million from currently planned alliance activities, purchases of Discovery Tools systems, and licensing fees. In addition, Symyx is entitled to
receive royalties from the commercialization of materials, processes, and products based on discoveries made in the fields of agreement.

In
December 2004, Symyx entered into an Alliance, Technology Transfer, Research and License Agreement effective January 1, 2005 with The Dow Chemical Company under which
the Company is contracted to perform research in a number of exclusive areas, develop and provide Symyx Discovery Tools, and license Symyx's Renaissance suite of software as well as certain
intellectual property. Dow will make payments to Symyx over the five-year term of approximately $120 million. In addition, Symyx is entitled to receive royalties on commercialized
discoveries resulting from the collaborative research.

The
Company does not track or allocate actual costs by collaboration or project, as the requirement from its collaborative partners is to staff the various projects on a
full-time-equivalent ("FTE") employee basis. Accordingly, the Company tracks the assignment of these FTE's to each project over time. Based on the analysis of these FTE's, for
the twelve months ended December 31, 2004, approximately 81% of the Company's research effort, determined based on employee hours charged to a project, was on research for collaborative
projects funded by the Company's partners. The remaining 19% of research effort was on Symyx funded
research and development. The focus of the Symyx funded programs in 2004 was largely on development of the Company's proprietary sensor technology, on industrial polymer applications, and the next
generation of Discovery Tools. In 2003 and 2002 approximately 65% and 63%, respectively, of the Company's research effort was for collaborative projects funded by the Company's partners with
approximately 35% and 37%, respectively, being Symyx funded research.

3.    Commitments and Contingencies

Leases

In May 1999, the Company entered into an eight-and-a-half-year operating lease agreement for a facility,
with the lease period commencing in October 1999. In February 2000, the Company entered into an agreement to lease an additional facility. The lease commenced on October 1, 2000
and has an initial term of ten years with an option to extend the initial term for an additional five years. In May 2003, the Company entered into an agreement to lease a storage facility for a
period of three years. In connection with the acquisition of IntelliChem, the Company acquired the rights and assumed the obligations for the lease of office space under an operating lease agreement
that expires in March 2008.

Rent
expense, which is being recognized on a straight-line basis over the lease terms, was approximately $1,955,000, $1,996,000, and $2,248,000 for the years ended
December 31, 2004, 2003, and 2002, respectively.

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Future
commitments and obligations under the operating leases for the Company's facilities, to be satisfied as they become due over the next seven years, are as follows as of
December 31, 2004 (in thousands):

Years ending December 31,

Amount2005

$
2,0042006


2,0612007


2,1262008


1,7292009


1,516Thereafter


1,170Total

$
10,606


Other Commitments

As of December 31, 2004, the Company had purchase commitments for inventory and fixed assets of approximately $722,000.

As
of December 31, 2004 the Company had no amounts due under loan agreements and had no lines of credit or other finance facilities in place. Interest expense for the years ended
December 31, 2004, 2003, and 2002 was $0, $0, and $9,000, respectively.

Customer Indemnification

From time to time, the Company agrees to indemnify its customers against certain third party liability, including liability if the Company's products infringe a
third party's intellectual property rights. Such indemnification provisions are accounted for in accordance with SFAS No. 5,Accounting for
Contingencies. The indemnification is typically limited to no more than the amount paid by the customer. As of December 31, 2004, the Company was not subject to any
pending litigation.

4.    Stockholders' Equity

Preferred Stock

In September 1999, the Board of Directors approved an amendment to the Company's certificate of incorporation to authorize 10,000,000 shares of
undesignated preferred stock, for which the Board of Directors is authorized to fix the designation, powers, preferences, and rights.

Common Stock

Included in the common shares outstanding at December 31, 2004, 2003, and 2002 are 0, 2,154, and 48,755 shares, respectively, of common stock subject to
repurchase rights, which expired ratably over four or five years from date of issuance. Certain of these shares were issued pursuant to full-recourse notes receivable, with interest at
rates between 4.6% and 6.0% per annum and were due and payable on the earlier of 120 days after termination of the participant's employment with the Company, or on various dates, which began in
February 2003 and ended in August 2004 (See Note 8 "Related Party Transactions."). As of December 31, 2004, all the balances of notes receivable from stockholders had been
repaid.

72

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Stock Purchase Plan

In October 1999, the Company's stockholders approved the adoption of the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 300,000 shares
of the Company's common stock were initially reserved for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock at a discount, but only through
payroll deductions, during concurrent
24-month offering periods. Each offering period will be divided into four consecutive six-month purchase periods. The price at which stock is purchased under the Purchase Plan
is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. In addition, the Purchase Plan provides for annual increases in the
number of shares available for issuance under the Purchase Plan on the first day of each fiscal year, equal to the lesser of 1% of the outstanding shares of common stock on the first day of the fiscal
year, 350,000 shares, or a lesser amount as determined by the Board of Directors. At December 31, 2004, shares of common stock available for future issue under the Purchase Plan were 1,390,883.

Stock Option Plans

The Company's 1996 Stock Option Plan was adopted in March 1996 and provided for the issuance of options for up to 1,153,444 shares of common stock to
employees, directors, and consultants.

During
1997, the Company's Board of Directors approved the adoption of the 1997 Stock Option Plan with terms and conditions the same as those of the 1996 Stock Option Plan (collectively,
the "Qualified Plans"). The 1997 Stock Option Plan provides for the issuance of options for up to 11,463,423 shares of common stock to employee and consultants. The Qualified Plans provide for an
annual increase in the number of shares of common stock reserved for issuance equal to the lesser of 1,500,000 shares, 4% of the outstanding shares on the date of the annual increase, or a lesser
amount as determined by the Board of Directors.

In
October 2001, the Company's Board of Directors approved the adoption of the 2001 Nonstatutory Stock Option Plan (the "NSO Plan"). The NSO Plan provides for the issuance of
options for up to 1,000,000 shares of common stock to non-executive employees and consultants. As of December 31, 2004, options to purchase 385,600 shares of common stock were
granted under the NSO Plan.

In
connection with the acquisition of IntelliChem, the Company assumed all the unvested outstanding stock options issued pursuant to IntelliChem's 2003 Stock Option Plan to purchase
44,126 shares of Symyx's common stock. These options generally retained all of the rights, terms, and conditions of the plan under which they were originally granted.

Stock
options granted under the Qualified Plans may be either incentive stock options or nonstatutory stock options, whereas stock options granted under the NSO Plan are nonstatutory
stock options. Options are generally granted with exercise prices equal to the fair value of the common stock on the grant date, as determined by the Board of Directors. The options expire no more
than 10 years after the date of grant or earlier if employment or relationship as a director or consultant is terminated. The Board of Directors shall determine the times during the term when
the options may be exercised and the number of shares for which an option may be granted. Options may be granted with different
vesting terms from time to time but will provide for annual vesting of at least 20% of the total number of shares subject to the option.

73

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A summary of activity under the 1996 and 1997 Stock Option Plans, the 2001 Nonstatutory Stock Option Plan, and the 2003 IntelliChem, Inc. Stock Option Plan
is as follows:

|                             |  | Outstanding Stock Options
|---------------------------- |  | -------------------------
|
|Balance at January 1, 2002   |  | 4,799,319                
|Options granted              |  | 1,143,925                
|Options exercised            |  | (216,460                 
|Options cancelled            |  | (349,803                 
|                             |  |                          
|Balance at December 31, 2002 |  | 5,376,981                
|Options granted              |  | 1,983,750                
|Options exercised            |  | (578,572                 
|Options cancelled            |  | (255,159                 
|                             |  |                          
|Balance at December 31, 2003 |  | 6,527,000                
|Options granted and assumed  |  | 1,950,851                
|Options exercised            |  | (741,302                 
|Options cancelled            |  | (302,064                 
|                             |  |                          
|Balance at December 31, 2004 |  | 7,434,485                
|                             |  |                          

At
December 31, 2004, 2003, and 2002, vested and outstanding options of 5,125,025, 4,287,355, and 3,067,521 shares were exercisable at weighted-average exercise prices of $26.51,
$25.75, and $20.35, respectively. The weighted-average grant date fair value of options granted during the years ended December 31, 2004, 2003, and 2002 was $12.12, $7.44, and $8.33,
respectively. At December 31, 2004, options for shares of common stock available for future grants were 481,547 shares under the 1997 Stock Option Plan and 614,400 shares under the 2001 NSO
Plan.

An
analysis of options outstanding at December 31, 2004 is as follows:

|                |  |           |  | Weighted-
Average
Remaining
Contractual Life
(in years) |  |   |       | Options Vested
|--------------- |  | --------- |  | ------------------------------------------------------- |  | - | ----- | --------------
|
|
|$0.19  $0.39   |  | 64,561    |  | 2.9                                                     |  | $ | 0.39  |               
|$0.96  $0.96   |  | 217,667   |  | 4.0                                                     |  | $ | 0.96  |               
|$1.93  $3.86   |  | 87,391    |  | 6.6                                                     |  | $ | 2.84  |               
|$6.43  $8.42   |  | 95,006    |  | 5.7                                                     |  | $ | 7.15  |               
|$10.39  $15.30 |  | 1,912,012 |  | 7.3                                                     |  | $ | 12.99 |               
|$15.63  $23.22 |  | 1,128,060 |  | 8.0                                                     |  | $ | 17.81 |               
|$23.50  $34.63 |  | 2,777,683 |  | 8.0                                                     |  | $ | 27.40 |               
|$36.50  $51.50 |  | 133,444   |  | 5.5                                                     |  | $ | 40.52 |               
|$55.38  $58.25 |  | 1,018,661 |  | 5.1                                                     |  | $ | 57.01 |               
|                |  |           |  |                                                         |  |   |       |               
|                |  | 7,434,485 |  | 7.2                                                     |  | $ | 24.98 |               
|                |  |           |  |                                                         |  |   |       |               

As of December 31, 2004, the Company has reserved 8,530,432 shares of common stock for future issuance in relation to the Company's Stock
Option Plans.

74

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Prior
to year 2000, in connection with the grant of certain share options to employees, the Company recorded deferred stock compensation of $4,070,000 and $605,000, respectively,
representing the difference between the exercise price and the deemed fair value of the Company's common stock on the date such stock options were granted. Deferred stock compensation is included as a
reduction of stockholders' equity and is being amortized to expense on a graded vesting method. During the years ended December 31, 2004, 2003, and 2002, the Company recorded amortization of
deferred stock compensation expense of approximately $7,000, $43,000, and $168,000, respectively. At December 31, 2004, the Company had fully amortized the deferred stock compensation discussed
above.

During
the year ended December 31, 2004, in connection with the acquisition of IntelliChem, the Company recorded deferred stock compensation amounting to $651,000 for the unvested
stock options assumed with an exercise price below the fair market value. Deferred stock compensation is included as
a reduction of stockholders' equity and is being amortized to expense on a graded vesting method. During the year ended December 31, 2004, the Company recorded amortization of deferred stock
compensation expense associated with these options of approximately $33,000. The remaining balance of deferred stock compensation will be amortized through November 2008.

The
Company also issued stock options to an outside consultant, for which the Company recorded approximately $500,000 and $94,000 of stock-based compensation during the years ended
December 31, 2004 and 2003, respectively. No options were issued to outside consultants and no stock-based compensation was recognized in the year ended December 31, 2002.

The
amortization of deferred stock compensation, combined with the expense associated with stock options granted to non-employees, has been included in the following items in
the accompanying Consolidated Income Statements (in thousands):

Years Ended December 31,2004

2003

2002Research and development

$
22

$
51

$
125Sales, general and administrative


518


86


43Total

$
540

$
137

$
168


75

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5.    Income Taxes

The provision for income taxes consisted of the following (in thousands):

Years Ended December 31,2004

2003

2002Current:Federal

$
5,520

$
1,255

$
1,952State


745


(78
)

119Foreign


18


10


28Total


6,283


1,187


2,099Deferred:Federal


(760
)

235


558State


(2,196
)

(132
)

Total


(2,956
)

103


558Provision for income taxes

$
3,327

$
1,290

$
2,657


Tax
benefits resulting from the exercise of nonqualified stock options and the disqualifying dispositions of shares issued under the Company's stock-based compensation plans were
approximately $6,138,000 in 2004, $776,000 in 2003, and $3,963,000 in 2002. Such benefits were credited to additional paid-in capital.

The
reconciliation of federal statutory income tax to the Company's provision for income taxes is as follows (in thousands):

Years Ended December 31,2004

2003

2002Expected provision at federal statutory rate

$
5,671

$
2,461

$
2,780State taxes, net of federal impact


(1,451
)

(210
)

119Research and development credits


(1,780
)

(125
)

(50
)Valuation allowance utilized





(798
)

(338
)Permanent difference related to acquisition


791





Other individually immaterial items


96


(38
)

146Provision for income taxes

$
3,327

$
1,290

$
2,657


Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax

76

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purposes.
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

December 31,2004

2003Deferred tax assets:Net operating loss carry-forwards

$
806

$
1,271Deferred revenue


30


288Capitalized research and development


472


596Depreciation


3,935


2,960Warranty reserve


266


734R&D and other credits


2,442


995Other accruals and reserves


2,304


1,528Total deferred tax assets before valuation allowance


10,255


8,372Valuation allowance for deferred tax assets


(95
)

(6,522
)Total deferred tax assets


10,160


1,850Deferred tax liabilities:Investment holdings





(28
)Prepaid insurance and property tax


(486
)

(465
)Intangible assets


(4,820
)

Total deferred tax liabilities


(5,306
)

(493
)Net deferred tax assets

$
4,854

$
1,357


Deferred
tax assets are recognized if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company's historical operating
performance, the Company has provided a valuation allowance against deferred tax assets that it determined may not be realizable as of December 31, 2004. The net valuation allowance decreased
by approximately $6,427,000, $19,000, and $1,908,000 during the years ended December 31, 2004, 2003, and 2002, respectively.

The
reduction of valuation allowance in 2004 consisted of three major components: (1) $4,151,000 was used to reduce goodwill when a deferred tax liability was recorded on the
acquisition of IntelliChem, during which $1,667,000 of tax benefits related to the exercise of stock options were absorbed; (2) $1,162,000 was related to the exercise of stock options which is
not reflected as an expense for financial reporting purposes (accordingly, this amount had been credited directly to equity and not reflected as an income tax benefit in the consolidated income
statement); and (3) The remaining $1,114,000 was recognized as a state deferred tax benefit in the consolidated income statement.

As
of December 31, 2004, the Company had federal and Oregon net operating loss carryforwards of approximately $2,277,000 and $4,792,000, respectively. The net operating losses
arose from the acquisition of IntelliChem and may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar
state provisions.
The annual limitation may result in the expiration of net operating losses and credits before utilization. The net operating loss carryforwards will start to expire in 2020, if not utilized.

As
of December 31, 2004, the Company had federal and California research and development tax credit carryforward of approximately $1,267,000 and $1,806,000, respectively. The
federal research and

77

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development
tax credits will begin to expire in 2011. The state research and development credits have no expiration date.

6.    Segment Disclosure

Statement of Financial Accounting Standards No. 131,Disclosures about Segments of an Enterprise and Related
Information(SFAS 131), requires disclosures of certain information regarding operating segments, products and services, geographic areas of operation and major
customers. The method for determining what information to report under SFAS 131 is based upon the "management approach," or the way that management organizes the operating segments within a
company, for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing
performance. Symyx's CODM is the Chief Executive Officer. The CODM evaluates the performance of the Company based on consolidated profit or loss from operations before income taxes. For the purpose of
making operating decisions, the CODM primarily considers financial information presented on a consolidated basis accompanied by disaggregated information about revenues. Revenue is defined as revenues
from external customers.

Symyx
allocates research personnel time to each collaboration arrangement on a full-time-equivalent basis but does not allocate actual research and development
expenses to each collaboration or business segment. The Company does not assess segment performance below the revenue level or allocate sales, general and administrative expenses or assets to the
individual segments and, therefore, financial performance including depreciation and amortization and capital expenditures is not reported on a segment basis.

Revenue
is disaggregated into:



78

---







The disaggregated financial information reviewed by the CODM is as follows (in thousands):

Years Ended December 31,2004

2003

2002Industry Collaborations

$
40,958

$
36,125

$
28,889Industry Collaborations  Related Party


1,173


1,671


Discovery Tools


28,576


18,861


31,856Intellectual Property Licensing


4,191


3,887


3,311Sensors


1,472


1,191


Software


6,665


1,228


765Software  Related Party


150





Total

$
83,185

$
62,963

$
64,821


The
disaggregated financial information reviewed by the CODM can be reconciled to the revenue disclosed in the Consolidated Income Statements as follows (in thousands):

Year Ended December 31, 2004Service
Revenue

Service
Revenue-
Related Party

Product
Sales

License
Fees and
Royalties

License Fees
and Royalties
 Related
Party

Total
RevenueIndustry Collaborations

$
34,958

$
1,173

$


$
6,000

$


$
42,131Discovery Tools


2,831





25,714


31





28,576Intellectual Property Licensing











4,191





4,191Sensors


690





17


765





1,472Software


2,599





1,329


2,737


150


6,815Total

$
41,078

$
1,173

$
27,060

$
13,724

$
150

$
83,185


Year Ended December 31, 2003Service
Revenue

Service
Revenue-
Related Party

Product
Sales

License
Fees and
Royalties

License Fees
and Royalties
 Related
Party

Total
RevenueIndustry Collaborations

$
31,625

$
1,671

$


$
4,500

$


$
37,796Discovery Tools


4,403





14,458








18,861Intellectual Property Licensing











3,887





3,887Sensors


617








574





1,191Software


373








855





1,228Total

$
37,018

$
1,671

$
14,458

$
9,816

$


$
62,963


79

---



Year Ended December 31, 2002Service
Revenue

Service
Revenue-
Related Party

Product
Sales

License
Fees and
Royalties

License Fees
and Royalties
 Related Party

Total
RevenueIndustry Collaborations

$
28,738

$


$


$
151

$


$
28,889Discovery Tools


6,230





25,626








31,856Intellectual Property Licensing











3,311





3,311Sensors

















Software


429





251


85





765Total

$
35,397

$


$
25,877

$
3,547

$


$
64,821


Geographic Area Data

All significant long-lived assets were geographically located in the United States for all periods presented. All revenue is generated in the United
States for all periods presented, but is presented in the table below based on the physical location of Symyx's customers (in thousands).

Years Ended December 31,2004

2003

2002North America

$
66,607

$
53,803

$
56,989Japan


5,432


7,174


6,525Belgium


8,334





Europe


2,812


1,986


1,307Total

$
83,185

$
62,963

$
64,821


7.    Business Combination

On November 30, 2004, Symyx acquired 100% of outstanding common and preferred shares of IntelliChem, a provider of intelligent electronic lab notebooks
(iELN) for customers in the pharmaceutical, biotechnology, and chemical industries. The results of IntelliChem's operations have been included in the consolidated financial statements since that date.

In
accordance with Statement of Financial Accounting Standards No. 141,Business Combinations, the Company allocated the purchase
price to the tangible assets, deferred compensation, liabilities, and intangible assets acquired, as well as in-process research and development, based on their estimated fair values. The
excess purchase price over the fair values was recorded as goodwill. The fair value assigned to intangible assets acquired was based on estimates and assumptions determined by management. The acquired
goodwill was assigned entirely to the Company's software segment. Purchased intangibles with finite lives are amortized on a straight-line basis over their respective useful lives.

The
total purchase price for this acquisition was $30,600,000, consisting of approximately $29,259,000 in cash, $1,041,000 in fair value of assumed stock options to purchase 44,126
shares of Symyx common stock, and $300,000 in transaction costs, consisting of legal and other professional service fees. Stock

80

---



options
were valued using the Black-Scholes option pricing model. The assumptions used in calculating fair value were as follows:

Group A
Options

Group B
OptionsExpected life (years)


3


4Risk-free rate


3.23
%

3.44
%Expected dividend yield


0
%

0
%Volatility


55.7
%

55.7
%Fair value per share

$
26.05

$
13.37


The
intrinsic value of these options, totaling approximately $651,000, has been recorded as deferred stock compensation.

The
purchase price allocation is as follows (in thousands):

AmountFair value of net assets purchased

$
4,476In-process research and development


2,260Trade name


860Developed technology


8,370Customer relationships


4,700Unearned stock compensation


651Deferred tax liabilities


(4,151
)Release of valuation allowance against acquirer's deferred income tax assets upon recognition of deferred income tax liabilities on acquired identifiable intangible assets in connection with acquisition of
IntelliChem


4,151Goodwill


9,283Total

$
30,600


The
fair values of IntelliChem's net assets as of the acquisition date were (in thousands):

AmountCash

$
2,492Restricted cash


104Accounts receivable, net


1,325Income tax receivable


855Prepaids and other assets


298Plant, property and equipment


323Accounts payable and other accrued liabilities


(374
)Accrued compensation


(259
)Deferred revenue


(288
)Fair value of IntelliChem's net assets

$
4,476


The
allocation of the consideration for the acquisition of IntelliChem to its individual assets and liabilities was based on management's analysis and estimates of the fair values of the
acquired assets and liabilities. In addition to the value assigned to in-process research and development ("IPR&D") projects,

81

---



and
IntelliChem's tangible assets, specific intangible assets were identified and valued. The identifiable intangible assets included customer relationships, a trade name, and developed technology.

The
IPR&D project that IntelliChem has been working on was the development of next generation of IntelliChem software. That software has not yet been proven to be technologically
feasible but has been developed to a point where it had value associated with potential future revenue. Because technological feasibility was not yet proven and no alternative future uses were
believed to exist for the in-process technologies, the assigned value was expensed immediately upon the closing date of the acquisition, in accordance with FASB Interpretation
No. 4,Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.

The
value of IPR&D was determined by estimating the expected cash flows from the projects once commercially viable, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value as defined below. A discount rate of 28% was used which is higher than IntelliChem's computed weighted average cost of capital of 20% due to
inherent risk surrounding the successful development of the IPR&D and the increase in projected financial results compared with historical results.

None
of the goodwill will be deductible for tax purposes.

In
performing this purchase price allocation, the Company considered, among other factors, its intention for future use of the acquired assets, analyses of historical financial
performance and estimates of future performance of IntelliChem's products. The fair value of intangible assets was primarily based on the income approach. The relief from royalty approach was also
utilized when appropriate. The rates utilized to discount the net cash flows to their present values ranged from 24% to 28%. These discount rates were determined after consideration of the Company's
rate of return and the weighted average return on assets. Risks the Company identified and considered in this analysis included achieving anticipated levels of market acceptance and penetration,
successful completion of development efforts, market growth rates, and risks related to the impact of potential changes in future target markets. At December 31, 2004, identifiable intangible
assets purchased in the IntelliChem acquisition consisted of the following (in thousands, except for useful life) with a weighted average useful life of 5.2 years  no
significant residual value is estimated for these assets:

Amount

Useful LifeTrade name

$
860

4.5 yearsDeveloped technology


8,370

4.5 yearsCustomer relationships


4,700

6.5 yearsBalance at December 31, 2004, at cost

$
13,930


Pro Forma Financial Information (unaudited)

The unaudited financial information in the table below summarizes the combined results of operations of Symyx and IntelliChem, on a pro forma basis, as though the
companies had been combined as of the beginning of each period presented. The impact of the IPR&D charge associated with the acquisition has been excluded. This pro forma financial information is
presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of each period
presented. The unaudited pro forma combined income statement data for the year ended December 31, 2004 combines the historical results for Symyx for the year ended December 31, 2004 and
the historical results for IntelliChem for the period of

82

---



January 1,
2004 through November 30, 2004. The unaudited pro forma combined income statement data for the year ended December 31, 2003 combines the historical results for Symyx
for the year ended December 31, 2003 and the historical results for IntelliChem for the year ended December 31, 2003. The following amounts are in thousands, except per share amounts.

Years Ended December 31,2004

2003Revenue

$
84,909

$
66,586Net income

$
10,971

$
4,382Basic income per share

$
0.34

$
0.14Diluted income per share

$
0.32

$
0.13


8.    Related Party Transactions

Prior to its initial public offering, the Company implemented a program under which directors, executive officers and certain other employees were permitted to
purchase restricted stock or to exercise stock options pursuant to full recourse promissory notes. The notes had interest rates of between 4.6% and 6.0% per annum and were due and payable on the
earlier of 120 days after termination of employment or on various dates which began in February 2003 and ended in August 2004. In 1999 and 1998, loans were made in the amount of
$361,000 and $398,000, respectively, pursuant to this program. During 2004, 2003, and 2002, $134,000, $270,000, and $5,000 of these promissory notes were repaid, respectively. As of
December 31, 2004, these loans had been fully repaid.

In
January 2003, the Company formed Ilypsa, Inc. ("Ilypsa"), formerly known as Symyx Therapeutics, Inc., as a wholly-owned subsidiary. In connection with the
formation of Ilypsa, the Company licensed to Ilypsa exclusive rights to certain of the Company's intellectual property within a specific field with no cost basis to the Company, while retaining the
rights to use and commercialize certain data generated by Ilypsa outside its field. From Ilypsa's inception through May 6, 2003, the operating results of Ilypsa were consolidated into the
Company's financial statements. On May 6, 2003, Ilypsa completed a private financing with outside investors led by The Sprout Group and 5am Ventures, raising an aggregate of $8,000,000, which
reduced the Company's ownership position in Ilypsa to approximately 46% of shares outstanding. In connection with Ilypsa's financing, the Company retained the right to designate one of three members
of Ilypsa's Board of Directors. The Company's current designee to Ilypsa's Board is its President, Isy Goldwasser. In November 2003, Ilypsa completed a second closing of its Series A
financing, raising an additional $2,350,000. As of December 31, 2004, the Company's ownership position in Ilypsa was approximately 37% of shares outstanding. The Company's President, Isy
Goldwasser and one of its Directors, Peter Schultz, each participated in the Series A Financing and exercised certain shares of stock options. They each currently hold approximately 1.1% of
Ilypsa's shares outstanding.

The
Company accounts for its ownership interest in Ilypsa on the equity method as the Company and its affiliates do not control the strategic, operating, investing, and financing
activities of Ilypsa. As the Company's investment in Ilypsa has no cost basis for accounting purposes under generally accepted accounting principles, the Company has not recorded any proportionate
share of Ilypsa's operating losses in its financial statements since the completion of Ilypsa's initial financing.

On
May 6, 2003, the Company also entered into an 18 month Collaborative Research and License Agreement with Ilypsa. Under the terms of this Agreement, Ilypsa paid research
funding to the Company in consideration for direct costs incurred by the Company specifically attributable to, or specifically used in furtherance of, the research program. Research funding payments
were due to the Company at the start of

83

---



each
month, with an adjustment at the end of each month for the difference between forecast and actual costs incurred. Revenue resulting from work performed under this Agreement during the years ended
December 31, 2004 and 2003 amounted to $1,173,000 and $1,671,000, respectively, and has been classified as related party revenue. During the year ended December 31, 2004, the Company
received $150,000 as consideration for a software license granted to Ilypsa, Inc. The amount receivable from Ilypsa was $7,000 as of December 31, 2004 and $0 as of December 31,
2003. The amount received under the above Agreement in advance of the services being provided was $0 at December 31, 2004 and $137,000 at December 31, 2003 and has been classified as an
advance from a related party. In April 2004, the Company sold certain fixed assets with a net book value of $72,000 to Ilypsa for $227,000. The gain on the sale was included in interest and
other income in the consolidated income statement.

The
Company has no repurchase rights with respect to either the licensed technology or the results of research conducted under the Collaborative Research and License Agreement.

9.    Financial Instruments

The Company has not entered into any derivative contracts at December 31, 2004. The following is a summary of the Company's risk management strategies and
the effect of these strategies on the Company's consolidated financial statements.

Concentrations of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and investments. The Company
does not carry a significant trade accounts receivable balance. The Company maintains cash and cash equivalents and available-for-sale investments in various corporate debt
securities, money market funds, and U.S. Treasury notes. The Company's policy is designed to limit exposure to any one institution or company. The relative credit standing of the note holders is
monitored to ensure compliance with the Company's investment strategy. The Company does not require collateral on these financial instruments.

Investments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents:The carrying amount reported in the balance sheet for cash and cash equivalents is its fair value.

Accounts receivable and accounts payable:The carrying amounts reported in the balance sheet for accounts receivable and
accounts payable approximate their fair value.

Available-for-sale securities:The fair values for available-for-sale equity
securities are based on quoted market prices. The fair values for available-for-sale securities together with information in relation to their maturity dates are included in
Note 1 to these financial statements.

84

---





10.    Intangible Assets

Acquired Technology

In February 2000, the Company exercised an option to license certain patent rights and know-how relating to synthesis and screening of diverse
materials in connection with combinatorial materials science research. Symyx paid $750,000 and also issued 16,262 shares of common stock to acquire these rights. The License Agreement also provides
for Symyx to pay up to an additional $1,500,000 subject to the achievement of certain milestones. Subsequently, milestone payments of $250,000 were made in each of July 2000,
December 2001, and October 2003. The exercise of this option and the subsequent milestone payments have been accounted for as an acquisition of technology and the associated costs are
being amortized over the expected remaining useful life of the technology. In December 2004, the Company paid an additional $375,000 and committed to pay a final $375,000 in June 2005 to
gain additional rights that were an excluded field under the original license arrangement. The remaining unamortized balance of the acquired technology is being amortized over a five-year
period from December 2004. Additional patents were acquired from a third party in May 2003 for $65,000 and are being amortized over a five-year period, representing the
estimated useful life of this acquired technology. In fiscal years ended December 31, 2004, 2003, and 2002, the Company recorded approximately $191,000, $369,000, and $425,000, respectively, of
amortization expense related to acquired technology.

Acquired Intangibles

The Company obtained certain intangible assets in the acquisition of IntelliChem in November 2004 (See Note 7 "Business Combination"). These
identifiable intangible assets include a trade name, developed technology, and customer relationships and are being amortized on a
straight-line basis over the estimated useful lives of the assets. For fiscal 2004 the Company recorded intangible asset amortization expense of $231,000 related to this acquisition.

Total
intangible assets consists of the following (in thousands):

December 31,2004

2003Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
AmountAcquired technology

$
3,130

$
(1,715
)
$
1,415

$
2,380

$
(1,524
)
$
856Trade name


860


(16
)

844








Developed technology


8,370


(155
)

8,215








Customer relationship


4,700


(60
)

4,640








Total intangibles

$
17,060

$
(1,946
)
$
15,114

$
2,380

$
(1,524
)
$
856


Assuming
no subsequent impairment of the underlying assets, the annual amortization expense of total intangible assets is expected to be approximately $3,066,000 in each of the years
2005 through 2007, $3,058,000 in 2008 and $1,833,000 in 2009.

11.    Subsequent Events

On February 22, 2005, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of privately-held
Synthematix, Inc. ("Synthematix"), based in Durham, North Carolina.

85

---



Synthematix
is a provider of organic synthesis reaction planning software systems for scientific knowledge management in chemistry research, with customers primarily in the pharmaceutical and
biotechnology industries. The Company agreed to pay approximately $13 million in cash, plus an additional potential payment of $4 million over a one-year period based on the
achievement of incremental revenue targets. The Company also agreed to assume options to purchase approximately 27,500 shares of its common stock. The Company expects to close this transaction in
April 2005.

12.    Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 2004 and 2003 (in thousands, except per share amounts).

|                                           |                                     | Three Months Ended       |       
|------------------------------------------ | ----------------------------------- | ------------------------ | ------
|
|2004                                       |                                     |                          |       
|Total revenue                              |                                     | $                        | 19,479
|Operating expenses:                        |                                     |                          |       
|                                           | Cost of products sold               |                          |       
|                                           | Research and development            |                          |       
|                                           | Sales, general and administrative   |                          |       
|                                           | In-process research and development |                          |       
|                                           |                                     |                          |       
|                                           |                                     | Total operating expenses |       
|Interest and other income (expense), net   |                                     |                          | 519   
|                                           |                                     |                          |       
|Income before income tax expense (benefit) |                                     |                          | 3,367 
|Income tax expense (benefit)               |                                     |                          | 1,360 
|                                           |                                     |                          |       
|Net income                                 |                                     | $                        | 2,007 
|                                           |                                     |                          |       
|Basic net income per share(a)              |                                     | $                        | 0.06  
|                                           |                                     |                          |       
|Diluted net income per share(a)            |                                     | $                        | 0.06  
|                                           |                                     |                          |       

86

---



|                                         |                                   | Three Months Ended      
|---------------------------------------- | --------------------------------- | ------------------------
|
|2003                                     |                                   |                         
|Total revenue                            |                                   | $                       
|Operating expenses:                      |                                   |                         
|                                         | Cost of products sold             |                         
|                                         | Research and development          |                         
|                                         | Sales, general and administrative |                         
|                                         |                                   |                         
|                                         |                                   | Total operating expenses
|Interest and other income (expense), net |                                   |                         
|                                         |                                   |                         
|Income before income tax expense         |                                   |                         
|Income tax expense                       |                                   |                         
|                                         |                                   |                         
|Net income                               |                                   | $                       
|                                         |                                   |                         
|Basic net income per share (a)           |                                   | $                       
|                                         |                                   |                         
|Diluted net income per share (a)         |                                   | $                       
|                                         |                                   |                         

---

87

---





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

Not
applicable.

Item 9A.Controls and Procedures







Item 9B.Other Information

On March 7, 2005, we amended and restated our bylaws to allow for electronic transmission of consents of the board members. The certificate of amendment to
our bylaws is filed herein as Exhibit 3.3 to this Annual Report on Form 10-K.

88

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PART III

Item 10.Directors and Executive Officers of the Registrant

The information required by this item is hereby incorporated by reference from the information under the captions "Election of Directors" and "Executive Officers"
contained in the Company's definitive Proxy Statement, to be filed with the Securities and Exchange Commission no later than 120 days from the end of the Company's last fiscal year in
connection with the solicitation of proxies for its 2004 Annual Meeting of Stockholders (the "Proxy Statement"). The information required by Section 16(a) is incorporated by reference from the
information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement.

The
Company has adopted a Code of Conduct and Ethics that applies to its employees, including principal executive officer, principal financial officer and controller, within the meaning
of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. A copy of the Code of Conduct and Ethics is available at the Company's website: www.symyx.com and without
charge upon written request to: Corporate Secretary, 3100 Central Expressway, Santa Clara, CA 95051. To the extent required by the law, amendments to, and waivers from, any provision of the Company's
Code of Conduct and Ethics will promptly be disclosed to the public. To the extent permitted by such legal requirements, the Company intends to make such public disclosure by posting such information
on the Company's website in accordance with SEC rules.

Item 11.Executive Compensation

The information required by this item is incorporated by reference from the information under the caption "Executive Officer Compensation" in the Proxy Statement.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information appearing in our 2005 Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management" is incorporated by
reference.

In
order to diversify their investment portfolios, four of our executive officers, Steven D. Goldby, Isy Goldwasser, Jeryl L. Hilleman, and Dr. W. Henry Weinberg and
one of our board directors, Dr. Peter Schultz, had adopted stock trading plans to facilitate the sale of shares of our common stock pursuant to Rule 10b5-1 of the Securities
Exchange Act of 1934, as amended.

See
"Equity Compensation Plans" in Part II, Item 5 of this Annual Report on Form 10-K regarding shares authorized for issuance under equity compensation plans
approved by stockholders and not approved by stockholders. For descriptions of our equity compensation plans, see Note 4 "Stockholders' Equity" of Notes to the Consolidated Financial Statements
in Part II, Item 8 of this Annual Report on Form 10-K.

Item 13.Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the information under the caption "Certain Relationships and Related Transactions" in the
Proxy Statement.

Item 14.Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the information under the caption "Principal Auditor Fees and Services" in the Proxy
Statement.

89

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PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)
1.Financial Statements

The following Financial Statements of Symyx Technologies, Inc. and the Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm,
and of the management of Symyx Technologies, Inc., have been filed as part of this Annual Report on Form 10-K. See index to Consolidated Financial Statements under Item 8 above:



(a)
2.Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto.

(a)
3.Exhibits

Refer to (b) below.

(b)
Exhibits

|Exhibit
Number |  | Description of Document                                                                                                                                    
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                            
|2.1*(8)        |  | Agreement and Plan of Merger, dated as of November 12, 2004, by and among Symyx Technologies, Inc., and IntelliChem, Inc.                                  
|3.1(1)         |  | Amended and Restated Certificate of Incorporation                                                                                                          
|3.2(7)         |  | Amended and Restated Bylaws of Symyx Technologies, Inc.                                                                                                    
|3.3(10)        |  | Certificate of Amendment to the Amended and Restated Bylaws of Symyx Technologies, Inc.                                                                    
|4.1(2)         |  | Specimen Common Stock Certificate                                                                                                                          
|10.1**(9)      |  | Symyx Technologies, Inc. 2005 Cash Bonus Plan for Executive Officers                                                                                       
|10.2**(2)      |  | 1996 Stock Plan and forms of agreements thereunder                                                                                                         
|10.3**(2)      |  | 1997 Stock Plan and forms of agreements thereunder                                                                                                         
|10.4**(2)      |  | 1999 Employee Stock Purchase Plan                                                                                                                          
|10.5(2)        |  | Form of Director and Executive Officer Indemnification Agreement                                                                                           
|10.6**(2)      |  | Form of Change of Control Agreement between Symyx and the following individuals: Steven D. Goldby, Isy Goldwasser, Jeryl L. Hilleman, and W. Henry Weinberg
|               |  |                                                                                                                                                            

90

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|10.7(2)     |  | Standard Industrial/Commercial Single-Tenant Lease dated November 15, 1996 between Symyx and Patrick and Bette Ng, Co-Trustees for The Ng Living Trust, for office space located at 3100 Central Expressway, Santa Clara,
 California, and addenda and inserts thereto
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7(a)(2)  |  | First Amendment to Lease between Symyx and Patrick and Bette Ng, Co-Trustees for The Ng Living Trust                                                                                                                                                                  
|10.8(2)     |  | Collaboration Agreement dated March 1, 1998 between Symyx and Bayer AG                                                                                                                                                                                                
|10.8(a)(2)  |  | Amendment No. 1 dated May 1, 1998 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                               
|10.8(b)(2)  |  | Amendment No. 2 dated November 1, 1998 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                          
|10.8(c)(2)  |  | Amendment No. 3 dated January 1, 1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                           
|10.8(d)(2)  |  | Amendment No. 4 dated September 15, 1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                        
|10.9(2)     |  | Celanese-Symyx Collaboration Agreement dated August 1, 1998 between Symyx and Celanese Ltd.                                                                                                                                                                           
|10.10(2)    |  | Collaborative Research and License Agreement dated January 1, 1999 between Symyx and The Dow Chemical Company                                                                                                                                                         
|10.11(2)    |  | License Agreement dated June 22, 1995 between Symyx and Lawrence Berkeley Laboratory, on behalf of The Regents of the University of California                                                                                                                        
|10.12(2)    |  | License and Supply Agreement effective August 6, 1999 between Symyx and Argonaut Technologies, Inc.                                                                                                                                                                   
|10.13(3)    |  | Lease by and between East Arques Sunnyvale, LLC and Symyx Technologies, Inc. for the premises at 1263 E. Arques, Sunnyvale, California, and addenda and inserts thereto                                                                                               
|10.14(4)    |  | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                                                                   
|10.15*(5)   |  | License Agreement dated February 21, 2003 between Symyx Technologies, Inc. and Symyx Therapeutics, Inc.                                                                                                                                                               
|10.16*(6)   |  | Alliance, Technology Transfer, and License Agreement effective April 1, 2003 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc. and ExxonMobil Research and Engineering Company.                                                                           
|10.17*(10)  |  | Alliance Agreement dated December 16, 2004 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc. and The Dow Chemical Company                                                                                                                                 
|10.18**(10) |  | 2003 IntelliChem, Inc. Stock Option Plan and forms of agreements thereunder                                                                                                                                                                                           
|14(7)       |  | Symyx Technologies, Inc. Code of Conduct and Ethics                                                                                                                                                                                                                   
|21(10)      |  | List of Subsidiaries                                                                                                                                                                                                                                                  
|23.1(10)    |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                              
|31.1(10)    |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.                                        
|            |  |                                                                                                                                                                                                                                                                       

91

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|31.2(10) |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|32.1(10) |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                

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92

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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.

|                    | SYMYX TECHNOLOGIES, INC.(Registrant)                                                                                                 | 
|------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | 
|Date: March 8, 2005 |                                                                                                                                      | 
|                    | /s/STEVEN D. GOLDBYSteven D. Goldby Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)                    
|Date: March 8, 2005 |                                                                                                                                      | 
|                    | /s/JERYL L. HILLEMANJeryl L. Hilleman Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven D. Goldby and Jeryl L. Hilleman,
or either of them, each with the power
of substitution, his attorney-in-fact, to sign any amendments to this Annual Report on Form 10-K (including post-effective amendments), and to
file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

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

|Signature |  | Title                                 |  | Date                                                                                             
|--------- |  | ------------------------------------- |  | -------------------------------------------------------------------------------------------------
|          |  |                                       |  |                                                                                                  
|By        |  | /s/STEVEN D. GOLDBYSteven D. Goldby   |  | Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)                  
|By        |  | /s/JERYL L. HILLEMANJeryl L. Hilleman |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|          |  |                                       |  |                                                                                                  

93

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|By |  | /s/THOMAS R. BARUCHThomas R. Baruch           |  | Director |  | March 8, 2005
|-- |  | --------------------------------------------- |  | -------- |  | -------------
|By |  | /s/SAMUEL D. COLELLASamuel D. Colella         |  | Director |  | March 8, 2005
|By |  | /s/EDWIN F. GAMBRELLEdwin F. Gambrell         |  | Director |  | March 8, 2005
|By |  | /s/MARTIN S. GERSTELMartin S. Gerstel         |  | Director |  | March 8, 2005
|By |  | /s/KENNETH J. NUSSBACHERKenneth J. Nussbacher |  | Director |  | March 8, 2005
|By |  | /s/MARIO M. ROSATIMario M. Rosati             |  | Director |  | March 8, 2005
|By |  | /s/PETER G. SCHULTZPeter G. Schultz           |  | Director |  | March 8, 2005

94

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EXHIBIT INDEX

|Exhibit
Number |  | Description of Document                                                                                                                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                       
|2.1*(8)        |  | Agreement and Plan of Merger, dated as of November 12, 2004, by and among Symyx Technologies, Inc., and IntelliChem, Inc.                                                                                                                                             
|3.1(1)         |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                     
|3.2(7)         |  | Amended and Restated Bylaws of Symyx Technologies, Inc.                                                                                                                                                                                                               
|3.3(10)        |  | Certificate of Amendment to the Amended and Restated Bylaws of Symyx Technologies, Inc.                                                                                                                                                                               
|4.1(2)         |  | Specimen Common Stock Certificate                                                                                                                                                                                                                                     
|10.1**(9)      |  | Symyx Technologies, Inc. 2005 Cash Bonus Plan for Executive Officers                                                                                                                                                                                                  
|10.2**(2)      |  | 1996 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                    
|10.3**(2)      |  | 1997 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                    
|10.4**(2)      |  | 1999 Employee Stock Purchase Plan                                                                                                                                                                                                                                     
|10.5(2)        |  | Form of Director and Executive Officer Indemnification Agreement                                                                                                                                                                                                      
|10.6**(2)      |  | Form of Change of Control Agreement between Symyx and the following individuals: Steven D. Goldby, Isy Goldwasser, Jeryl L. Hilleman, and W. Henry Weinberg                                                                                                           
|10.7(2)        |  | Standard Industrial/Commercial Single-Tenant Lease dated November 15, 1996 between Symyx and Patrick and Bette Ng, Co-Trustees for The Ng Living Trust, for office space located at 3100 Central Expressway, Santa Clara,
 California, and addenda and inserts thereto
|10.7(a)(2)     |  | First Amendment to Lease between Symyx and Patrick and Bette Ng, Co-Trustees for The Ng Living Trust                                                                                                                                                                  
|10.8(2)        |  | Collaboration Agreement dated March 1, 1998 between Symyx and Bayer AG                                                                                                                                                                                                
|10.8(a)(2)     |  | Amendment No. 1 dated May 1, 1998 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                               
|10.8(b)(2)     |  | Amendment No. 2 dated November 1, 1998 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                          
|10.8(c)(2)     |  | Amendment No. 3 dated January 1, 1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                           
|10.8(d)(2)     |  | Amendment No. 4 dated September 15, 1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                        
|10.9(2)        |  | Celanese-Symyx Collaboration Agreement dated August 1, 1998 between Symyx and Celanese Ltd.                                                                                                                                                                           
|10.10(2)       |  | Collaborative Research and License Agreement dated January 1, 1999 between Symyx and The Dow Chemical Company                                                                                                                                                         
|10.11(2)       |  | License Agreement dated June 22, 1995 between Symyx and Lawrence Berkeley Laboratory, on behalf of The Regents of the University of California                                                                                                                        
|10.12(2)       |  | License and Supply Agreement effective August 6, 1999 between Symyx and Argonaut Technologies, Inc.                                                                                                                                                                   
|10.13(3)       |  | Lease by and between East Arques Sunnyvale, LLC and Symyx Technologies, Inc. for the premises at 1263 E. Arques, Sunnyvale, California, and addenda and inserts thereto                                                                                               
|10.14(4)       |  | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                                                                   
|10.15*(5)      |  | License Agreement dated February 21, 2003 between Symyx Technologies, Inc. and Symyx Therapeutics, Inc.                                                                                                                                                               
|10.16*(6)      |  | Alliance, Technology Transfer, and License Agreement effective April 1, 2003 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc. and ExxonMobil Research and Engineering Company.                                                                           
|               |  |                                                                                                                                                                                                                                                                       

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|10.17*(10)  |  | Alliance Agreement dated December 16, 2004 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc. and The Dow Chemical Company                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18**(10) |  | 2003 IntelliChem, Inc. Stock Option Plan and forms of agreements thereunder                                                                                                                                                   
|14(7)       |  | Symyx Technologies, Inc. Code of Conduct and Ethics                                                                                                                                                                           
|21(10)      |  | List of Subsidiaries                                                                                                                                                                                                          
|23.1(10)    |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                      
|31.1(10)    |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.
|31.2(10)    |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.
|32.1(10)    |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                

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