---

---

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

FORM 10-Q

(Mark One)

|[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACTS OF 1934.
|------------------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED December 31, 2003

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934.For the transition period from     to     .

Commission file number 000-24487

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

|DELAWARE                                                        |  | 77-0322161                            
|--------------------------------------------------------------- |  | --------------------------------------
|(State or other jurisdiction of  Incorporation or organization) |  | (I.R.S. EmployerIdentification Number)

1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353(Address
 of principal executive offices)

Registrant's telephone number, including area code:
 (650) 567-5000

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934).   Yes [X ]   No [  ]

As
of January 30, 2004, the number of outstanding shares of the Registrants common
stock, $.001 par value, was 40,861,388.

---

---

---

PART I  FINANCIAL
INFORMATION

|                                                                                                   |  | 
|-------------------------------------------------------------------------------------------------- |  | 
|Item 1.     Financial Statements (Unaudited):                                                      |  | 
|                                                                                                   |  | 
|Condensed Consolidated Balance Sheets                                                              |  | 
|Condensed Consolidated Statements of Operations                                                    |  | 
|Condensed Consolidated Statements of Cash Flows                                                    |  | 
|Notes to Condensed Consolidated Financial Statements                                               |  | 
|                                                                                                   |  | 
|Item 2.     Management's Discussion and Analysis of Results of Operations and Financial Conditions |  | 
|                                                                                                   |  | 
|Item 3.     Quantitative and Qualitative Disclosures About Market Risk                             |  | 
|                                                                                                   |  | 
|Item 4.     Controls and Procedures                                                                |  | 

PART II  OTHER INFORMATION

|                                                                |  | 
|--------------------------------------------------------------- |  | 
|Item 5.     Submission of Matters to a Vote of Security Holders |  | 
|                                                                |  | 
|Item 6.     Exhibits and Reports on Form 8-K                    |  | 
|                                                                |  | 
|Signatures                                                      |  | 

2

---

PART I - FINANCIAL
INFORMATION

ITEM 1.     FINANCIAL
STATEMENTS

# MIPS TECHNOLOGIES,
INC.                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

|                                          | December 31,
2003 | June 30,
2003
|----------------------------------------- | ----------------- | -------------
|
|ASSETS                                    |                   |              
|Current assets:                           |                   |              
|Cash and cash equivalents                 |                   |              
|Short-term investments                    |                   |              
|Accounts receivable, net                  |                   |              
|Prepaid expenses and other current assets |                   |              
|                                          |                   |              
|Total current assets                      |                   |              
|Equipment and furniture, net              |                   |              
|Intangible assets, net                    |                   |              
|Other assets                              |                   |              
|                                          |                   |              
|                                          |                   |              
|                                          |                   |              
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                   |              
|Current liabilities:                      |                   |              
|Accounts payable                          |                   |              
|Accrued liabilities                       |                   |              
|Deferred revenue                          |                   |              
|                                          |                   |              
|Total current liabilities                 |                   |              
|Long-term liabilities                     |                   |              
|                                          |                   |              
|                                          |                   |              
|Stockholders' equity:                     |                   |              
|Common stock                              |                   |              
|Additional paid-in capital                |                   |              
|Accumulated other comprehensive income    |                   |              
|Deferred compensation                     |                   |              
|Accumulated deficit                       |                   |              
|                                          |                   |              
|Total stockholders' equity                |                   |              
|                                          |                   |              
|                                          |                   |              
|                                          |                   |              

See accompanying notes.

3

---

MIPS TECHNOLOGIES, INC.CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except
per share data)

|                                                             | Three Months Ended
December 31, | Six Months Ended
December 31,
|------------------------------------------------------------ | ------------------------------- | -----------------------------
|
|Revenue:                                                     |                                 |                              
|Royalties                                                    |                                 |                              
|Contract revenue                                             |                                 |                              
|                                                             |                                 |                              
|Total revenue                                                |                                 |                              
|Costs and expenses:                                          |                                 |                              
|Cost of contract revenue                                     |                                 |                              
|Research and development                                     |                                 |                              
|Sales and marketing                                          |                                 |                              
|General and administrative                                   |                                 |                              
|Acquired in-process research and development                 |                                 |                              
|Restructuring                                                |                                 |                              
|                                                             |                                 |                              
|Total costs and expenses                                     |                                 |                              
|                                                             |                                 |                              
|Operating income (loss)                                      |                                 |                              
|Other income (expense), net                                  |                                 |                              
|                                                             |                                 |                              
|Income (loss) before income taxes                            |                                 |                              
|Provision for income taxes                                   |                                 |                              
|                                                             |                                 |                              
|Net income (loss)                                            |                                 |                              
|                                                             |                                 |                              
|Net income (loss) per basic share                            |                                 |                              
|                                                             |                                 |                              
|Net income (loss) per diluted share                          |                                 |                              
|                                                             |                                 |                              
|Shares used in computing net income (loss) per basic share   |                                 |                              
|                                                             |                                 |                              
|Shares used in computing net income (loss) per diluted share |                                 |                              
|                                                             |                                 |                              

See accompanying notes.

4

---

MIPS TECHNOLOGIES, INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)

|                                                                                 | Six Months Ended December 31,
|-------------------------------------------------------------------------------- | -----------------------------
|
|Operating activities:                                                            |                              
|Net loss                                                                         |                              
|Adjustments to reconcile net loss to net cash used in operating activities:      |                              
|Depreciation                                                                     |                              
|Restructuring costs                                                              |                              
|Write-off of investment in a privately-held company                              |                              
|Acquired in-process research and development                                     |                              
|Amortization of intangibles                                                      |                              
|Other non-cash charges                                                           |                              
|Changes in operating assets and liabilities:                                     |                              
|Accounts receivable                                                              |                              
|Accounts payable                                                                 |                              
|Other assets and liabilities, net                                                |                              
|                                                                                 |                              
|Net cash provided by (used in) operating activities                              |                              
|Investing activities:                                                            |                              
|Purchases of short-term investments                                              |                              
|Maturities of short-term investments                                             |                              
|Capital expenditures                                                             |                              
|Purchases of intangible assets                                                   |                              
|Acquisition of Algorithmics Limited and an affiliated company, DFS3 Limited, net |                              
|Payment related to purchase of intangible assets in a prior period.              |                              
|                                                                                 |                              
|Net cash used in investing activities                                            |                              
|Financing activities:                                                            |                              
|Net proceeds from issuance of common stock                                       |                              
|Loan repayment                                                                   |                              
|                                                                                 |                              
|Net cash provided by (used in) financing activities                              |                              
|Effect of exchange rate on cash and cash equivalents                             |                              
|                                                                                 |                              
|Net decrease in cash and cash equivalents                                        |                              
|Cash and cash equivalents, beginning of period                                   |                              
|                                                                                 |                              
|Cash and cash equivalents, end of period                                         |                              
|                                                                                 |                              

See accompanying notes.

5

---

# MIPS TECHNOLOGIES,
INC.

# NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Note 1.   Description of
Business and Basis of Presentation

Formation
of MIPS Technologies, Inc. (MIPS). MIPS Technologies, Inc.s predecessor, MIPS
Computer Systems, Inc., was founded in 1984 and was engaged in the design and development
of reduced instruction set computing, or RISC, processors for the computer systems and
embedded markets. Silicon Graphics, Inc. (Silicon Graphics) adopted the MIPS architecture
for its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992.
Following the acquisition, Silicon Graphics continued the MIPS processor business through
its MIPS Group (a division of Silicon Graphics), which focused primarily on the
development of high-performance processors for Silicon Graphics workstations and
servers. In order to increase the focus of the MIPS Group on the design and development of
processor applications dedicated to the embedded market, in December 1997 Silicon Graphics
initiated a plan to separate the business of the MIPS Group from its other operations.

In
April 1998, our Board of Directors approved a transaction pursuant to which Silicon
Graphics transferred to us the assets and liabilities related to the design and
development of processor intellectual property for embedded market applications. From the
closing of our initial public offering on July 6, 1998, until June 20, 2000, we were a
majority owned subsidiary of Silicon Graphics. On June 20, 2000, Silicon Graphics
distributed all of its remaining interest in MIPS in the form of a stock dividend to its
stockholders.

Basis
of Presentation. The unaudited results of operations for the interim periods shown in
these financial statements are not necessarily indicative of operating results for the
entire fiscal year. In our opinion, the condensed consolidated financial statements
include all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position, results of operations and cash flows for each
interim period shown.

The
condensed consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission (SEC)
applicable to interim financial information. Certain information and footnote disclosures
included in financial statements prepared in accordance with generally accepted accounting
principles have been omitted in these interim statements as allowed by such SEC rules and
regulations. The balance sheet at June 30, 2003 has been derived from audited financial
statements, but does not include all disclosures required by generally accepted accounting
principles. However, we believe that the disclosures are adequate to make the information
presented not misleading. The unaudited condensed consolidated financial statements
included in this Form 10-Q should be read in conjunction with the audited consolidated
financial statements and related notes for the fiscal year ended June 30, 2003, included
in our 2003Annual Report on Form 10-K.

Use
of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results inevitably
will differ from those estimates, and such differences may be material to the financial
statements.

Revenue
Recognition. We derive revenue from license fees for the transfer of proven and reusable
intellectual property components or engineering services. We enter into licensing
agreements that provide licensees the right to incorporate MIPS intellectual
property components in their products with terms and conditions that have historically
varied by licensee. Generally, these payments include a nonrefundable technology license
fee for currently available technology, which is payable upon the transfer of intellectual
property, or a nonrefundable engineering service fee, which generally is payable upon
achievement of defined milestones. Each of these types of contracts is a nonexclusive
license for the underlying intellectual property. While we may be required to perform
certain services to render the intellectual property suitable for license under an
engineering service contract, we continue to own the intellectual property that we
develop. The amount of the license fee under an engineering service agreement is primarily
a function of our determination of the underlying value of the technology rather than our
cost of completing the development of the technology required by the agreement. We also

6

---

have the right to license to other licensees the intellectual property developed under
engineering service agreements. In addition, these agreements also include royalty
payments, which are payable upon sale of a licensees product incorporating our
licensed technology, and maintenance and limited support fees. We classify all revenue
that involves the sale of a licensees products as royalty revenue. Royalty revenue
is recognized in the quarter in which a report is received from a licensee detailing the
shipments of products incorporating our intellectual property components, which is in the
quarter following the sale of the licensees product to its customer. We classify all
revenue that does not involve the sale of a licensees products, primarily technology
license fees, engineering service fees and maintenance and support fees, as contract
revenue. Consistent with Staff Accounting Bulletin No. 101  Revenue Recognition in
Financial Statements, license fees are recorded as revenue upon the execution of the
license agreement when there is persuasive evidence of an arrangement, fees are fixed or
determinable, delivery has occurred and collectibility is probable. The only undelivered
element of the contract is our separate obligation to provide support and maintenance for
a specified period of time, if purchased by the customer. Fees related to engineering
services contracts for technology under development, which contracts are performed on a
best efforts basis and for which we receive periodic milestone payments, are recognized as
revenue over the estimated development period, using a cost-based percentage of completion
method limited to the amount of milestone payments attained under each agreement. Upon the
execution of each engineering services contract, we estimate the engineering resources
required to complete the development effort. We regularly review and if necessary, revise,
the estimated cost of development, as the development effort is subject to change due to
changes in engineering schedules, resource availability and in some instances deliverable
requirements from the licensee or third parties. To the extent the revised estimated costs
of development are less than the original estimate, the engineering service fee recognized
would be accelerated to the revised percentage of completion in the period in which the
adjustment occurred. Conversely, if the revised estimated costs of development are more
than the original estimate, the engineering service fee recognized would be adjusted to
the revised percentage of completion in the period in which the adjustment occurred. To
date, changes in the estimated costs of development have not been significant and the
impact of these changes to our revenue have been immaterial.

Under
our support and maintenance arrangements, we provide unspecified upgrades, bug fixes and
technical support. No other upgrades, products or other post-contract support are
provided. These arrangements are renewable annually by the customer. Support and
maintenance revenue is recognized at its fair value ratably over the period during which
the obligation exists, typically 12 months. The fair value of any support and maintenance
obligation is established based on the specified renewal rate for such support and
maintenance. Revenue from these arrangements for the second quarter of fiscal 2004 were
$739,000 and for the first six months of fiscal 2004 were $1.5 million compared to $1.1
million and $2.1 million for the comparable periods in fiscal 2003. When we provide a
combination of products and services to customers, in addition to the considerations noted
above, we evaluate the arrangements under EITF 00-21, Revenue Arrangements with Multiple
Deliverables, which is effective for transactions entered into after July 1, 2003. EITF
00-21 addresses certain aspects of accounting for arrangements under which we will perform
multiple revenue generating activities. Application of EITF 00-21 did not have a material
effect on our consolidated financial position or results of operations.

Cash
and Cash Equivalents and Short-term Investments. Cash and cash equivalents consists mainly
of financial instruments that are readily convertible into cash and have original
maturities of three months or less at the time of acquisition. Short-term investments
consist mainly of financial instruments that have original maturities of one year or less.
The fair values of cash and cash equivalents and short-term investments approximates their
recorded value at December 31, 2003 and June 30, 2003.

Goodwill
and Purchased Intangible Assets. We make estimates when we acquire businesses or acquire
groups of assets for a single aggregate price. The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to allocate the
purchase price to the fair value of the tangible and intangible assets acquired, including
in-process research and development, or IPR&D. Goodwill is recorded as the difference,
if any, between the aggregate consideration paid for an acquisition of a business and the
fair value of the net tangible and intangible assets acquired. Goodwill is not amortized
but is subject to annual impairment tests. The amounts and useful lives, generally 3 to 10
years, assigned to tangible and intangible assets, other than IPR&D, impact future
amortization expense; the amount assigned to IPR&D is expensed immediately.

Impairment
of Long-Lived Assets. We evaluate our long-lived assets, including purchased intangible
assets, whenever certain events or changes in circumstances indicate that the carrying
value of assets may not be recoverable or that the estimated useful life of the asset has
changed. In order to judge the carrying value of an asset or the remaining useful life of
an asset, we make various assumptions about the value of the asset in the future. This may
include assumptions about future prospects for the products to which the asset relates and
typically involves computations of the estimated future cash flows to be generated by
these products. If such assets are deemed impaired, an impairment loss equal to the amount
by which the carrying amount exceeds the fair value of the assets is recognized. Judgments
and assumptions about future values and remaining useful lives are complex and often
subjective. They can be affected by a variety of factors, including external factors such
as industry and economic trends, and internal factors such as changes in business strategy
and our internal forecasts.

7

---

Stock-Based
Compensation. We have adopted the disclosure requirements of Statement on Accounting
Standards (SFAS) No. 123, Accounting for Stock-based Compensation, as amended by SFAS No.
148  Accounting for Stock-Based Compensation  Transition and Disclosure. As
allowed by SFAS No. 123, we account for stock-based employee compensation arrangements
under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). As a result, no expense was recognized
for options to purchase our common stock that were granted with an exercise price equal to
fair market value at the date of grants and no expense was recognized in connection with
purchases under our employee stock purchase plan. For restricted common stock issued at
discounted prices, we recognize compensation expense over the vesting period for the
difference between the exercise or purchase price and the fair market value on the
measurement date. Total compensation expense recognized in our financial statements for
stock-based awards under APB 25 were $160,000 and $321,000 for the three-month and
six-month periods ending December 31, 2003 compared to $160,000 and $267,000 for the
comparable periods in fiscal 2003.

Pro
forma information regarding net loss and net loss per share has been determined as if we
had accounted for our employee stock options and employee stock purchase plans under the
fair value method prescribed by SFAS 123. For purposes of pro forma disclosures, the
estimated fair value of the stock awards is amortized to expense over the vesting periods
of such awards.

Our
pro forma information is as follows for the three-month and six-month periods ending
December 31, 2003 and 2002 (in thousands, except per share data):

|                                                               | Three Months Ended
December 31, | Six Months Ended
December 31,
|-------------------------------------------------------------- | ------------------------------- | -----------------------------
|
|Net income (loss), as reported                                 |                                 |                              
|Add: Stock-based employee compensation expense included in     |                                 |                              
|reported net income (loss), net of related tax effects         |                                 |                              
|Deduct: Total stock-based employee compensation expense        |                                 |                              
|determined under fair value method, net of tax related effects |                                 |                              
|                                                               |                                 |                              
|Pro forma net  (loss)                                          |                                 |                              
|                                                               |                                 |                              
|Basic net income (loss) per share:                             |                                 |                              
|As reported                                                    |                                 |                              
|                                                               |                                 |                              
|Pro forma                                                      |                                 |                              
|                                                               |                                 |                              
|Diluted net income (loss) per share:                           |                                 |                              
|As reported                                                    |                                 |                              
|                                                               |                                 |                              
|Pro forma                                                      |                                 |                              
|                                                               |                                 |                              

8

---

Reclassifications.
Certain balances in our fiscal 2003 consolidated financial statements have been reclassified to conform to the presentation in fiscal 2004.

Note 2.   Computation of
Earnings Per Share

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

|                                                                            | Three Months Ended
December 31, | Six Months Ended
December 31,
|--------------------------------------------------------------------------- | ------------------------------- | -----------------------------
|
|Numerator:                                                                  |                                 |                              
|Net income (loss)                                                           |                                 |                              
|                                                                            |                                 |                              
|Denominator:                                                                |                                 |                              
|Weighted-average shares of common stock outstanding                         |                                 |                              
|Less:  Weighted-average shares subject to repurchase                        |                                 |                              
|                                                                            |                                 |                              
|Shares used in computing net income (loss) per basic share                  |                                 |                              
|                                                                            |                                 |                              
|Effect of dilutive  securities-employee stock options and shares subject to |                                 |                              
|repurchase                                                                  |                                 |                              
|Shares used in computing net income (loss) per diluted share                |                                 |                              
|                                                                            |                                 |                              
|Net income (loss) per basic share                                           |                                 |                              
|                                                                            |                                 |                              
|Net income (loss) per diluted share                                         |                                 |                              
|                                                                            |                                 |                              
|Potentially dilutive securities excluded from net income per diluted share  |                                 |                              
|because they are anti-dilutive                                              |                                 |                              

Note 3.   Comprehensive Loss

Total
comprehensive loss includes net loss and other comprehensive income, which for us
primarily comprises unrealized gains and losses from foreign currency adjustments. Total
comprehensive loss for the first six months of fiscal 2004 was $5.1 million and total
comprehensive loss for the comparable period in the prior year was $17.8 million.

Note 4.   Acquisition

Acquisition
of Algorithmics, Limited

In
July 2002, we acquired Algorithmics, Limited, a United Kingdom-based tool chain company,
and an affiliated company, DFS3 Limited. The total purchase consideration for both
companies was approximately $3.1 million and consisted of $800,000 in cash, the issuance
of approximately 520,000 shares of our common stock valued at approximately $1.9 million,
and acquisition-related costs of approximately $485,000.

The
520,000 shares of our common stock that were granted to the Algorithmics
shareholder-employees vest over a three-year period beginning on the purchase agreement
consummation date. Vesting of these shares depends upon each employees continued
employment with us and any unvested shares are forfeited upon such employees
termination of employment with us. Therefore, we did not include the value of these shares
in the purchase price allocation calculation, but rather allocated their value to unearned
compensation. The fair value of our shares of $1.9 million was determined based on the
quoted closing price of such shares on the agreement consummation date. As of December 31,
2003, approximately $909,000 of the deferred compensation related to these stock shares
had been expensed.

9

---

We
recorded net tangible assets of $330,000, intangible assets of $238,000 and goodwill of
$248,000 upon completion of the acquisition. Additionally, a charge of $394,000 for
purchased in-process research and development expenses was recorded upon completion of the
acquisition of the technology because technological feasibility of the acquired technology
had not been established and no future alternative uses existed. The value of the projects
was determined by estimating the present value of the net cash flows we believed would
result from the acquired technology.

Note 5.   Purchased
Intangible Assets

All
of our purchased intangible assets, except goodwill, are subject to amortization.
Purchased intangible assets subject to amortization consisted of the following as of
December 31, 2003 and June 30, 2003 (in thousands):

|                            | December 31, 2003 | June 30, 2003
|--------------------------- | ----------------- | -------------
|
|Developed technology        |                   |              
|Core/patent  technology     |                   |              
|                            |                   |              
|Purchased intangible assets |                   |              
|                            |                   |              

Goodwill,
recorded in fiscal year 2003 as a result of the acquisition of Algorithmics, Limited as
discussed in Note 4, was $248,000 as of December 31, 2003 and June 30, 2003.

The
estimated future amortization expense of purchased intangible assets as of December 31,
2003 is approximately $296,000, $553,000, $549,000, $549,000 and $549,000 for the
remaining six months of fiscal 2004 and for fiscal years 2005, 2006, 2007 and 2008,
respectively, and approximately $727,000 for years following fiscal 2008. Amortization
expense for purchased intangible assets were $148,000 in the second quarter of fiscal 2004
and $296,000 for the first six months of fiscal 2004 compared to $216,000 and $474,000 for
the comparable periods in fiscal 2003.

Note 6.   Restructuring
Charge

We
recorded restructuring charges in fiscal 2003 and the first quarter of fiscal 2004 related
to restructuring activities in October 2002 and May 2003.

October
2002 Restructuring Activities. In the second quarter of fiscal 2003, we closed our Denmark
design center to consolidate our research and development activities in our headquarters
in California and in our recently acquired design center in the United Kingdom. We
implemented plans to eliminate 67 regular positions or about 30% of our workforce at that
time across all functions with the objective of reducing our operating expenses. These
actions resulted in a restructuring charge in fiscal 2003 of approximately $7.7 million.
The restructuring charge included approximately $3.2 million of employee severance and
related benefits, $1.7 million of facilities exit costs, primarily related to lease
expenses net of anticipated sublease income, $2.5 million in asset write-offs and $299,000
in legal and other costs. The severance and facility related charges were accounted for
under EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and
other Costs to Exit an Activity. The charges associated with the write-off of assets were
accounted for under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. All employees were terminated as of June 30, 2003.

A
summary of the October 2002 restructuring activities as of December 31, 2003 follows below
(in thousands):

|                                                | Severance | Facilities | Intangible
asset write-off | Other asset
write-off | Other costs | Total
|----------------------------------------------- | --------- | ---------- | -------------------------- | --------------------- | ----------- | -----
|Initial charge in second quarter of fiscal 2003 |           |            | $                          | 3,329                 |             | $    
|Additional charges                              |           |            |                            | (85                   | )           |      
|Cash payments                                   |           |            |                            | (3,338                | )           |      
|Non-cash write-offs                             |           |            |                            | 94                    |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2003                        |           |            |                            |                      |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|                                                |           |            |                            |                       |             |      
|Balance at December 31, 2003                    |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      

10

---

The
$1.7 million charge, recorded in the second quarter of fiscal 2003, for vacating our
Denmark design center consisted of our future obligations of $6.4 million under the
facility operating lease expiring in March 2010, partially offset by estimated sublease
income of approximately $4.7 million. We had engaged two external local real estate
professionals to provide an assessment of comparable commercial properties in the
Copenhagen, Denmark real estate market. Based on the input from these real estate
professionals, we estimated that a period of 15 months would elapse before we would be
able to sublease the facility, entailing a cost of facilities of $1.2 million during this
period. We also estimated that we would generate sublease income of $4.7 million over the
remaining 7.25 years of the term of the lease with total contractual obligation under the
facilities lease of $5.2 million. During the first quarter of fiscal 2004, we revised our
estimate of sublease income based upon updated information from real estate professionals
on market conditions in Denmark, received subsequent to the first quarter of fiscal 2004.
We estimate that an additional 18 months from March 2004 will elapse before we may be able
to sublease the facility, and that the amount of sublease income during the remainder of
the lease term will be $3.4 million. These revised estimates resulted in a charge to
restructuring during the first quarter of fiscal 2004 of $1.4 million. The sublease income
estimate and the estimated period to sublease the facility entail a high level of
management judgment. These market conditions have fluctuated greatly due to such factors
as changes in property occupancy rates and the rental prices charged for comparable
properties. We expect that market conditions will continue to fluctuate in the future, and
we assess these conditions on a quarterly basis. We may be required to record significant
additional charges in future periods if we revise our assumptions or if our actual
experience in subleasing our Denmark facility is not consistent with our assumptions.

As
part of our restructuring plan, we decided to reduce our investment in research and
development, and revised our product development plans. Given constraints on our
resources, we determined that we would not seek to integrate into our product plans the
developed technology we acquired from Lexra, Inc. in December 2001 and determined that
such developed technology had no value and recorded an impairment charge of $1.2 million
for the remaining value of this intangible asset in the second quarter of fiscal 2003.

Other
assets written off in fiscal 2003 as a part of the October 2002 restructuring action
included leasehold improvements and computer aided design software related to the Denmark
facilities. Other costs are composed primarily of legal fees and other restructuring
costs. The asset impairments that resulted from these exit activities were accounted for
under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

May
2003 Restructuring Activities.   In the fourth quarter of fiscal 2003, we announced a
restructuring plan intended to reduce our operating expenses consistent with our revenue
projections. The plan included the termination of approximately 57 regular employees and
contractors or approximately one-third of our workforce at that time including plans to
cease further internal development of custom processor cores at the end of the first
quarter of fiscal 2004. These activities resulted in a restructuring charge of
approximately $2.6 million in fiscal 2003, which mainly consisted of employee severance
costs. These costs and activities were accounted for under FAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. As of June 30, 2003, 23 employees had
been terminated under this activity and the remaining 34 employees and contractors were
terminated during the first quarter of fiscal 2004.

A
summary of the May 2003 restructuring activities as of December 31, 2003 follows below (in
thousands):

|                                                | Severance | Facilities | Other asset
write-off | Other costs | Total
|----------------------------------------------- | --------- | ---------- | --------------------- | ----------- | -----
|Initial charge in fourth quarter of fiscal 2003 |           |            | $                     | 2,508       |      
|Cash payments                                   |           |            |                       | (329        | )    
|Non-cash write-offs                             |           |            |                       |            |      
|                                                |           |            |                       |             |      
|Balance at June 30, 2003                        |           |            |                       | 2,179       |      
|Additional charges                              |           |            |                       | 1,803       |      
|Cash payments                                   |           |            |                       | (3,982      | )    
|                                                |           |            |                       |             |      
|Balance at December 31, 2003                    |           |            | $                     |            |      
|                                                |           |            |                       |             |      

The
restructuring charge recorded during the first quarter of fiscal 2004 of approximately
$1.8 million consisted primarily of employee severance costs, all of which were paid by
December 31, 2003.

11

---

Note 7.   Interest Income

Interest
income reported under other income (expense), net was $179,000 in the second quarter of
fiscal 2004 and $381,000 for the first six months of fiscal 2004 compared to $355,000 and
$925,000 in the comparable periods of fiscal 2003.

Note 8.   Contingencies

On
April 30, 2003, our Swiss subsidiary, MIPS Technologies International AG, or MIPS AG,
through which we conducted our operations in Denmark, terminated the employment of 55
employees in connection with the closure of our Denmark design center. Of these, 45
employees filed claims against MIPS AG in the County Court of Ballerup, Denmark.
Subsequently, 13 of these employees agreed to withdraw their claims. On the termination
date, the remaining 32 employees of MIPS AG held options to purchase an aggregate of
724,830 shares of our common stock, of which options to purchase 413,552 shares were
vested and options to purchase 311,278 shares were unvested. The exercise price of these
options ranged from $2.94 to $27.16 per share. Under our stock option plans, unvested
options expire upon termination of employment and vested options expire three months after
the termination of employment.

The
terminated employees are seeking, primarily, the right to exercise, regardless of the
termination of their employment, the options they held as of the date of their
termination, which expired on or within three months of the termination date. As such,
they are claiming, under alleged principles of Danish employment law, the right to
exercise such options, or in the alternative, money damages equal to the difference
between the excess of the trading price of our common stock shares over the exercise price
of the options on whatever future date the employee designates as an effective exercise
date of the option. The employees further claim that these effective rights to exercise
should continue for the same period as the respective terms of the options on which they
were based, that is, 10 years from the respective grant date of the underlying option.

Our
Swiss subsidiary intends to defend itself vigorously in these matters. Presently, we are
unable to assess the probability that this suit will result in a material loss to MIPS AG
or us. There is considerable uncertainty in Danish law about the legal issues in dispute.
Further, the amount of any loss would presumably depend on the future price of shares of
our common stock.

From
time to time, we receive communications from third parties asserting patent or other
rights covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license. There can be no assurance in any given case
that a license will be available on terms we consider reasonable, or that litigation will
not ensue.

Note 9.   Recent Accounting
Pronouncements

In
November 2002, the Financial Accounting Standards Board issued Emerging Issues Task Force
(referred to as EITF) Issue 00-21, Revenue Arrangements with Multiple Deliverables. EITF
Issue 00-21 addresses certain aspects of the accounting by a company for arrangements
under which it will perform multiple revenue-generating activities. EITF Issue 00-21
addresses when and how an arrangement involving multiple deliverables should be divided
into separate units of accounting and provides guidance with respect to the effect of
certain customer rights due to company nonperformance on the recognition of revenue
allocated to delivered units of accounting. EITF Issue 00-21 also addresses the impact on
the measurement and/or allocation of arrangement consideration of customer cancellation
provisions and consideration that varies as a result of future actions of the customer or
the company. Finally, EITF Issue 00-21 provides guidance with respect to the recognition
of the cost of certain deliverables that are excluded from the revenue accounting for an
arrangement. The provisions of EITF Issue 00-21 applies to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. Adoption of EITF Issue 00-21 did not
have a material impact on our results of operation or financial position.

12

---

ITEM 2.   MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

You
should read the following discussion and analysis together with our unaudited condensed
consolidated financial statements and the notes to those statements included elsewhere in
this report. This discussion may contain forward-looking statements that involve risks and
uncertainties. These forward-looking statements within this Quarterly Report on Form 10-Q
that address our expectations for future levels of operating expenses as well as other
expenses are identified by words such as believes, anticipates,
expects, intends, may and other similar expressions.
Our actual results could differ materially from those indicated in these forward-looking
statements as a result of certain factors, including those described under Factors
That May Affect Our Business, and other risks affecting our business. We undertake
no obligation to update any forward-looking statements included in this discussion.

Overview

MIPS
Technologies, Inc. is a leading developer of embedded processors and related intellectual
property for use in performance-oriented markets such as digital entertainment, wired and
wireless communications (including broadband access), office automation, security, and
automotive markets.

For
the second quarter of fiscal 2004, we recorded a net income of $477,000 and achieved
profitability for the first time in nine quarters. Our revenue increased by 3% over the
comparable period in fiscal 2003 due to a 43% increase in royalties.  The increase in royalties was generated by a
significant growth in royalties from license agreements signed since our 1998 initial
public offering as a result of more of these customers beginning to ship products incorporating our
technology. This royalty growth was partially offset by a 24% decline in our contract
revenue. Although we have seen an increase in licensing activity, signing 11 new
agreements during the second quarter of fiscal 2004, the amount of initial up-front
license fee recognized as revenue was lower than in the comparable period in fiscal 2003.
We expect that these new license agreements will contribute to contract revenue over the
next several quarters. The revenue mix shifted during the second quarter of fiscal 2004
with royalties contributing 55% of total revenues as compared to 40% in the comparable
period in fiscal 2003. Our operating costs also decreased during the quarter, driven by
the restructuring actions implemented during fiscal 2003. Our total operating expenses
during the second quarter of fiscal 2004 were $10.0 million, a decrease of 56% over the
second quarter of fiscal 2003, which included a $7.6 million restructuring charge. Our
research and development expenses declined, but more slowly than the decline in operating expense in the second quarter of fiscal 2004
compared to the first quarter of fiscal 2004 as we were still incurring costs associated
with our custom core development efforts during the quarter.  We have since ceased these development efforts. We expect that our operating expenses will remain relatively constant through
the balance of fiscal 2004.

For
the first six months of fiscal 2004, we recorded a net loss of $5.3 million. The loss
resulted from the $5.8 million loss reported in the first quarter of fiscal 2004, which
included costs of $3.2 million associated with the restructuring actions which were
implemented during the fourth quarter of fiscal 2003 and completed during the first
quarter of fiscal 2004.

Results of Operations

Revenue.   Our
revenue consists of royalties and contract revenue earned under contracts           with
our licensees. Our contracts with our licensees are typically subject to
          periodic renewal or extension and expire at various dates through June 2018.
          Although the precise terms of our contracts vary, they typically provide for
          royalties, technology license fees for currently available technology or
          engineering service fees for technology under development, and maintenance
fees.

We
generate royalties from the sale by our licensees of products incorporating our
technology. Royalty revenue is recognized in the quarter in which a report is received
from a licensee detailing the shipments of products incorporating our intellectual
property, which is in the quarter following the sale of the licensees product to its
customer. Royalties are calculated either as a percentage of the revenue received by the
seller on sales of such products or on a per unit basis.

13

---

We
generate contract revenue from technology license fees for currently available technology
and engineering service fees for technology under development. Each of these types of
contracts is a nonexclusive license for the underlying intellectual property. While we may
be required to perform certain services to render the intellectual property suitable for
license under an engineering service contract, we continue to own the intellectual
property that we develop. The amount of the license fee under an engineering service
agreement is primarily a function of our determination of the underlying value of the
technology rather than our cost of completing the development of the technology required
by the agreement. We also have the right to license to other licensees the intellectual
property developed under engineering service agreements. Consistent with Staff Accounting
Bulletin No. 101- Revenue Recognition in Financial Statements, technology license fees are
recorded as revenue upon the execution of the license agreement when there is persuasive
evidence of an arrangement, fees are fixed and determinable, delivery has occurred and
collectibility is probable. Technology license fees vary based on, among other things,
whether a particular technology is licensed for a single application or for multiple or
unlimited applications, and whether the license granted covers a particular design or a
broader architecture. Engineering service fees are related to engineering services
contracts, which are performed on a best efforts basis and for which we receive periodic
milestone payments. Engineering service fees are recognized as revenue over the estimated
development period using a cost-based percentage of completion method. In most instances,
the technology under development, including under engineering services contracts, can be
licensed to multiple customers.

Total
revenue for the second quarter of fiscal 2004 was $10.7 million and for the first six
months of fiscal 2004 was $21.1 million compared to $10.4 million and $19.8 million for
the comparable periods in fiscal 2003. Royalties for the second quarter of fiscal 2004
were $5.9 million and for the first six months of fiscal 2004 were $11.0 million compared
to $4.1 million and $7.7 million for the comparable periods in fiscal 2003. These increases
were due to an increase in royalties of $1.1 million in the
second quarter and $2.4 million for the first six months of fiscal 2004
under license agreements signed since our initial public offering in June 1998 as customers under these license agreements are beginning to ship products
incorporating our technology. In addition, we recognized $500,000 in royalties related to
a technology license agreement that expired in the first fiscal quarter of 2004 that
included a prepaid royalty balance. Contract revenues for the second quarter of fiscal
2004 were $4.8 million and for the first six months of fiscal 2004 were $10.1 million
compared to $6.2 million and $12.2 million for the comparable periods in fiscal 2003. The
decrease in contract revenue for the second quarter of fiscal 2004 was primarily due to a
decrease of $1.8 million in fees generated from new and existing license agreements for
developed technology offset in part by an increase of $400,000 in fees generated from
engineering services contracts for technology under development. The decrease in fees for
developed technology was primarily due to more multiple use agreements completed in the
prior period that generated higher initial license fees. Engineering service fees
increased because we had more agreements in place for the development of products than in
the prior period. The decrease in contract revenues in the first six months of fiscal 2004
was primarily due to a decline of $1.4 million in fees generated from new and existing
license agreements for developed technology and a decline of $637,000 in fees generated
from engineering services contracts for technology under development. The decrease in fees
for developed technology was primarily due to more multiple use agreements completed in
the prior periods that generated higher initial license fees. Engineering service fees
decreased because a lower amount of development was completed under engineering services
contracts than in the prior period.

Cost
of Contract Revenue.   Our cost of contract revenue consists of sublicense fees, which we
become obligated to pay when we sublicense to our customers technology that we have
licensed from third parties. Sublicense fees are recognized as cost of contract revenue
when the obligation is incurred, which is typically the same period in which the related
revenue is recognized.

Cost
of contract revenue for the second quarter and first six months of fiscal 2004 was zero,
compared to $250,000 for the comparable periods in fiscal 2003. We expect that in future
periods cost of contract revenue will continue to be immaterial.

Research
and Development.   Costs incurred with respect to internally developed technology and
engineering services which are not directly related to any particular licensee, license
agreement or license fee are included in research and development as they are incurred.

14

---

Research
and development expenses for the second quarter of fiscal 2004 were $5.5 million and for
the first six months of fiscal 2004 were $13.6 million, compared with research and
development expenses of $9.1 million and $17.6 million for the comparable periods in
fiscal 2003. The decrease in research and development expenses in the second quarter of
fiscal 2004 was primarily due to a decrease of $1.6 million as a result of the closure of
our Denmark design center in December 2002 and the consolidation of our research and
development activities into our California and United Kingdom locations, as well as a
decrease in salary and benefits expense of $1.1 million related to our May 2003
restructuring activities, a decrease in computer aided design tool costs of $470,000
caused by a reduced need for certain computer aided design tools after our fiscal 2003
restructuring activities and a decrease of $285,000 in spending on outside testing
services related to cores under development. The decrease in research and development
expense for the first six months of fiscal 2004 was also primarily due to the closure of
our Denmark design center, resulting in a decrease in expenses of $3.2 million, in
addition to a decrease in salary and benefits expense of $1.0 million related to our May
2003 restructuring activities, offset in part by a net increase of $641,000 in computer
aided design tool costs, primarily related to the accelerated amortization and
depreciation of certain computer aided design tools and software assets whose estimated
useful lives were reduced because of our restructuring plans announced in the fourth
quarter of fiscal 2003. We expect our research and development expenses to remain
relatively constant through the balance of fiscal 2004.

Sales
and Marketing.   Sales and marketing expenses for the second quarter of fiscal 2004 were
$2.5 million and for the first six months of fiscal 2004 were $5.3 million, compared to
$3.9 million and $7.1 million for the comparable periods in fiscal 2003. The decrease in
sales and marketing expenses for the second quarter of fiscal 2004 was primarily due to a
decrease in consulting expenses of $510,000 related to international sales agents and
marketing projects, a reduction in salary and benefits expense of $323,000 as a result of
the restructuring actions implemented in fiscal 2003, and a decrease of $270,000 due to
lower spending on third party software development tools. The decrease in sales and
marketing expenses for the first six months of fiscal 2004 was primarily due to a
reduction in salary and benefits expense of $940,000 as a result of the restructuring
actions implemented in fiscal 2003 and a decrease in consulting expenses of $565,000
related to international sales agents and marketing projects. We expect that our sales and
marketing expenses will remain relatively constant through the balance of fiscal 2004.

General
and Administrative.   General and administrative expenses for the second quarter of fiscal
2004 were $2.0 million and for the first six months of fiscal 2004 were $3.7 million,
compared to $2.0 million and $3.8 million for the comparable periods in fiscal 2003. The
decrease in general and administrative expenses for the first six months of fiscal 2004
was primarily due to a reversal of a bad debt allowance of $177,000 as we were able to
collect an outstanding receivable that had previously been determined to be uncollectable.
We expect that our general and administrative expenses will remain relatively constant
through the balance of fiscal 2004.

Acquired
In-Process Research and Development.   In July 2002, we completed the acquisition of
Algorithmics Limited, a United Kingdom-based tool chain company, and an affiliated
company, DFS3 Limited, for cash and stock consideration. We recorded a charge in the first
quarter of fiscal 2003 of $394,000 for purchased in-process research and development
expenses upon completion of the acquisition because technological feasibility of the
acquired technology had not been established and no future alternative uses existed. The
fair value of the projects was determined by estimating the present value of the net cash
flows we believed would result from the acquired technology.

Restructuring.   We
recorded restructuring charges in fiscal 2003 and the first quarter of fiscal
          2004 related to restructuring activities in October 2002 and May 2003.

October
2002 Restructuring Activities.   In the second quarter of fiscal 2003, we closed our Denmark
design center to consolidate our research and development activities in our headquarters
in California and in our recently acquired design center in the United Kingdom. We
implemented plans to eliminate 67 regular positions or about 30% of our workforce at that
time across all functions with the objective of reducing our operating expenses. These
actions resulted in a restructuring charge in fiscal 2003 of approximately $7.7 million.
The restructuring charge included approximately $3.2 million of employee severance and
related benefits, $1.7 million of facilities exit costs, primarily related to lease
expenses net of anticipated sublease income, $2.5 million in asset write-offs and $299,000
in legal and other costs. The severance and facility related charges were accounted for
under EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and
other Costs to Exit an Activity. The charges associated with the write-off of assets were
accounted for under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. All employees were terminated as of June 30, 2003.

15

---

A
summary of the October 2002 restructuring activities as of December 31, 2003 follows below
(in thousands):

|                                                | Severance | Facilities | Intangible
asset write-off | Other asset
write-off | Other costs | Total
|----------------------------------------------- | --------- | ---------- | -------------------------- | --------------------- | ----------- | -----
|Initial charge in second quarter of fiscal 2003 |           |            | $                          | 3,329                 |             | $    
|Additional charges                              |           |            |                            | (85                   | )           |      
|Cash payments                                   |           |            |                            | (3,338                | )           |      
|Non-cash write-offs                             |           |            |                            | 94                    |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2003                        |           |            |                            |                      |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|Balance at December 31, 2003                    |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      

The
$1.7 million charge, recorded in the second quarter of fiscal 2003, for vacating our
Denmark design center consisted of our future obligations of $6.4 million under the
facility operating lease expiring in March 2010, partially offset by estimated sublease
income of approximately $4.7 million. We had engaged two external local real estate
professionals to provide an assessment of comparable commercial properties in the
Copenhagen, Denmark real estate market. Based on the input from these real estate
professionals, we estimated that a period of 15 months would elapse before we would be
able to sublease the facility, entailing a cost of facilities of $1.2 million during this
period. We also estimated that we would generate sublease income of $4.7 million over the
remaining 7.25 years of the term of the lease with total contractual obligation under the
facilities lease of $5.2 million. During the first quarter of fiscal 2004, we revised our
estimate of sublease income based upon updated information from real estate professionals
on market conditions in Denmark, received subsequent to the first quarter of fiscal 2004.
We estimate that an additional 18 months from March 2004 will elapse before we may be able
to sublease the facility and that the amount of sublease income during the remainder of
the lease term will be $3.4 million. These revised estimates resulted in a charge to
restructuring during the first quarter of fiscal 2004 of $1.4 million. The sublease income
estimate and the estimated period to sublease the facility entail a high level of
management judgment. These market conditions have fluctuated greatly due to such factors
as changes in property occupancy rates and the rental prices charged for comparable
properties. We expect that market conditions will continue to fluctuate in the future, and
we assess these conditions on a quarterly basis. We may be required to record significant
additional charges in future periods if we revised our assumptions or if our actual
experience in subleasing our Denmark facility is not consistent with our assumptions.

As
part of our restructuring plan, we decided to reduce our investment in research and
development, and revised our product development plans. Given constraints on our
resources, we determined that we would not seek to integrate into our product plans the
developed technology we acquired from Lexra, Inc. in December 2001 and determined that
such developed technology had no value and recorded an impairment charge of $1.2 million
for the remaining value of this intangible asset in the second quarter of fiscal 2003.

Other
assets written off in fiscal 2003 as a part of the October 2002 restructuring action
included leasehold improvements and computer aided design software related to the Denmark
facilities. Other costs are composed primarily of legal fees and other restructuring
costs. The asset impairments that resulted from these exit activities were accounted for
under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

May
2003 Restructuring Activities.   In the fourth quarter of fiscal 2003, we announced a
restructuring plan intended to reduce our operating expenses consistent with our revenue
projections. The plan included the termination of approximately 57 regular employees and
contractors or approximately one-third of our workforce at that time including plans to
cease further internal development of custom processor cores at the end of the first
quarter of fiscal 2004. These activities resulted in a restructuring charge in fiscal 2003
of approximately $2.6 million, which mainly consisted of employee severance costs. These
costs and activities were accounted for under FAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. As of June 30, 2003, 23 employees had been terminated
under this activity and the remaining 34 employees and contractors were terminated during
the first quarter of fiscal 2004.

16

---

A
summary of the May 2003 restructuring activities as of December 31, 2003 follows below (in
thousands):

|                                                               | Severance | Facilities | Other asset
write-off | Other costs | Total
|-------------------------------------------------------------- | --------- | ---------- | --------------------- | ----------- | -----
|Initial restructuring charges in fourth quarter of fiscal 2003 |           |            | $                     | 2,508       |      
|Cash payments                                                  |           |            |                       | (329        | )    
|Non-cash write-offs                                            |           |            |                       |            |      
|                                                               |           |            |                       |             |      
|Balance at June 30, 2003                                       |           |            |                       | 2,179       |      
|Additional charges                                             |           |            |                       | 1,803       |      
|Cash payments                                                  |           |            |                       | (3,982      | )    
|                                                               |           |            |                       |             |      
|Balance at December 31, 2003                                   |           |            | $                     |            |      
|                                                               |           |            |                       |             |      

The
restructuring charge recorded during the first quarter of fiscal 2004 of approximately
$1.8 million consisted primarily of employee severance costs, all of which were paid by
December 31, 2003.

Other
Income (expense), Net.   Other income (expense), net, for the second quarter of fiscal 2004
was a net income of $107,000 and for the first six months of fiscal 2004 was a net income
of $315,000 compared to a net expense of $916,000 and net expense of $261,000 for the
comparable periods in fiscal 2003. We recorded an impairment charge of $1.4 million in the
second quarter of fiscal 2003 as we wrote off the full value of our investment in Lexra,
Inc. This expense was offset in part by other income of $498,000, primarily from interest
income.

Income
Taxes.   We recorded an income tax provision of $284,000 for the second quarter of fiscal
2004 and $852,000 for the first six months of fiscal 2004 consisting of foreign income
taxes and foreign withholding taxes. We recorded a tax provision of $856,000 for the
second quarter and first six months of fiscal 2003. The tax provision for the second
quarter and the first six months of fiscal 2004 differs from the expected benefit at the
applicable statutory rate due to our inability to benefit our current operating losses.
The estimated annual effective tax rate for the second quarter and first six months of
fiscal 2003 differs from the applicable statutory rate primarily due to losses for which
we can claim benefit offset by current year foreign income taxes.

Financial Condition

At
December 31, 2003, we had cash and cash equivalents of $63.5 million and total working
capital of $75.0 million.

Our
operating activities provided net cash of $1.5 million for the six months ended December
31, 2003 compared to net cash used of $733,000 for the comparable period in the prior
year. For the six-month period ended December 31, 2003, the amount of our net loss of $5.3
million was offset by non-cash charges, primarily depreciation of $1.9 million and
amortization of intangibles of $620,000, and by decreases in accounts receivable, and
other assets and liabilities. The decrease in accounts receivable of $2.2 million was
impacted by our collection of a single receivable in the amount of $1.0 million that had
been outstanding at June 30, 2003, the effect of which was partially offset by receivables
from new agreements during the quarter. The decrease in other assets of $3.6 million was
due to the receipt of an income tax receivable, annual amortization of prepaid insurance,
and amortization of our time-based computer-aided design tool licenses. The decrease in
other liabilities of $1.5 million was primarily due to payment of our annual business insurance
policy of $1.3 million, lower employee compensation accruals due to fewer employees at the
end of the period, and payment of accrued restructuring costs due to the termination of
employees during the quarter, partially offset by an additional accrual of $1.4 million
related to the closure of our Denmark facility. Restructuring charges are expected to be
funded by available cash, and could result in cash expenditures through March 2010, the
termination date of our Denmark facility lease.

17

---

During the six-month period ended
December 31, 2002, net cash provided by operating activities consisted mainly of our net
loss of $18.1 million partially offset by an increase in other liabilities of $4.3 million,
decreases in accounts receivable of $3.8 million, and other assets of $1.0 million, and by
non-cash charges for depreciation of $2.3 million and $740,000 in amortization of
intangibles and a write-off of the full value of our investment in Lexra, Inc. of $1.4
million as well as restructuring costs of $2.5 million. The increase in other liabilities was
due to the establishment of a reserve relating to the October 2002 restructuring activity,
offset in part by the $1.4 million payment of our annual business insurance policy. The
decrease in accounts receivable was a result of completing fewer licensing agreements
during the quarter. Other assets decreased due to amortization of our annual business
insurance in addition to amortization on our computer-aided design time-based licenses.

Net
cash used in investing activities was $22.4 million for the six-months ended December 31,
2003 compared to $4.1 million for the comparable period in the prior year. Net cash used
in investing activities during the six-month period ended December 31, 2003 included
purchases of short-term investments of $19.9 million as well as $2.5 million in purchases
of equipment and computer-aided design tools used in our development activities. Net cash
used in investing activities for the six-month period ended December 31, 2002 included
purchases of $10.0 million in short-term investments as well as $1.3 million used in the
acquisition of Algorithmics, Limited, $1.1 million used for the purchase of intangible
assets, and a $900,000 payment related to the purchase of intangible assets in a prior
period, along with $840,000 in purchases of equipment and computer-aided design tools used
in development, offset in part by $10.0 million in maturities of short-term investments.
Capital expenditures have been, and future expenditures are anticipated to be, primarily
for facilities and equipment to support our operations and licensing of computer-aided
design tools used in development.

Net
cash provided by financing activities was $495,000 for the six-months ended December 31,
2003 compared to net cash provided of $265,000 for the comparable period in the prior
year. Net cash provided by financing activities during the six-month period ended December
31, 2003 was attributable to employee stock purchases under our employee stock plans. Net
cash provided in the six-month period ended December 31, 2002 was also attributable to
purchases under our employee stock plan of $567,000, offset by a $302,000 repayment of a
loan, which was assumed in connection with the Algorithmics Limited acquisition.

Our
future liquidity and capital requirements could vary significantly from quarter to
quarter, depending on numerous factors, including, among others:

| |  | the
cost, timing and success of product development efforts;
| | - | ------------------------------------------------------------

| |  | the
level and timing of contract revenues and royalties;
| | - | --------------------------------------------------------

| |  | the
cost of  maintaining  and  enforcing  patent  claims  and  other  intellectual
         property rights and other litigation;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| |  | level
and timing of restructuring activities; and
| | - | -------------------------------------------------

| |  | whether
we complete any acquisitions.
| | - | -------------------------------------

We
believe that we have sufficient cash to meet our projected operating and capital
requirements for the foreseeable future. However, we may in the future be required to
raise additional funds through public or private financing, strategic relationships or
other arrangements. Additional equity financing may be dilutive to holders of our common
stock, and debt financing, if available, may involve restrictive covenants. Moreover,
strategic relationships, if necessary to raise additional funds, may require that we
relinquish our rights to certain of our technologies. Our failure to raise capital when
needed could have a material adverse effect on our business, results of operations and
financial condition.

Critical Accounting
Polices and Estimates

We
prepare our financial statements in conformity with accounting principles generally
accepted in the United States, which require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period.
We regularly evaluate our accounting estimates and assumptions. We base our estimates and
assumptions on historical experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results inevitably will differ from the estimates, and such
differences may require material adjustments to our financial statements.

18

---

Our
critical accounting policies relate to revenue recognition, goodwill and purchased
intangible assets, impairment of long-lived assets, income taxes and accrued facilities
restructuring charges. For a discussion of these critical accounting policies, please see
Critical Accounting Policies and Estimates in Item 7 of our Annual Report on
Form 10-K for the year ended June 30, 2003.

Factors That May Affect
Our Business

Our
success is subject to numerous risk and uncertainties, including those discussed below.
These factors could hinder our growth, cause us to sustain losses or have other adverse
effects on us, all of which could cause our stock price to decline.

Our
quarterly financial results are subject to significant fluctuations that could adversely
affect our stock price. Our quarterly financial results may vary significantly due to a
number of factors, many of which are outside of our control. In addition, our revenue
components are difficult to predict and may fluctuate significantly from period to period.
Because our expenses are largely independent of our revenue in any particular period, it
is difficult to accurately forecast our operating results. Our operating expenses are
based, in part, on anticipated future revenue and a high percentage of our expenses are
fixed in the short term. As a result, if our revenue is below expectations in any quarter,
the adverse effect may be magnified by our inability to adjust spending in a timely manner
to compensate for the revenue shortfall. Therefore, we believe that quarter-to-quarter
comparisons of our revenue and operating results may not be a good indication of our
future performance. It is possible that in some future periods our results of operations
may be below the expectations of securities analysts and investors. In that event, the
price of our common stock may fall.

Factors
that could cause our revenue and operating results to vary from quarter to quarter
include:

| |  | our
ability to identify  attractive  licensing  opportunities  and then enter into
                  new licensing agreements on terms that are acceptable to us;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
financial terms and delivery schedules of our contractual arrangements with our
licensees, which may provide for significant up-front payments, payments based on the
achievement of certain milestones or extended payment terms;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
relative mix of contract revenue and royalties;
| | - | ---------------------------------------------------

| |  | the
demand  for and  average  selling  prices of  products  that  incorporate  our
                  technology;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | competitive
pressures resulting in lower contract revenue or royalty rates;
| | - | ---------------------------------------------------------------------------

| |  | our
ability to develop, introduce and market new processor intellectual property;
| | - | ---------------------------------------------------------------------------------

| |  | the
 establishment  or  loss  of  licensing   relationships   with   semiconductor
                  companies or digital consumer and business product manufacturers;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
timing of new products and product enhancements by us and our competitors;
| | - | ------------------------------------------------------------------------------

| |  | changes
in development schedules, research and development expenditure levels and product support
by us and semiconductor companies and digital consumer and business product
manufacturers; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | uncertain
economic and market conditions.
| | - | -----------------------------------------

The
success of our business depends on maintaining and growing our contract revenue. In the
past, a substantial portion of our total revenues was generated by royalties from Nintendo
and NEC relating to Nintendo 64 video game players and related cartridges. As expected,
these royalties are now insignificant. We expect our future growth will depend in large
part on our ability to expand our contract revenue, which consists of technology license
fees paid for access to our developed technology and engineering service fees related to
technology under development. However, contract revenue declined in fiscal 2002, fiscal
2003 and the first six months of fiscal 2004. While we expect that we will continue to
grant additional licenses to new licensees and develop new products to license to both new
and existing licensees, we cannot predict whether we can maintain our current contract
revenue levels or if contract revenue will grow. Our licensees are not obligated to
license new or future generations of our products, so past contract revenue may not be
indicative of the amount of such revenue in any future period. If we cannot maintain or
grow our contract revenue, our results of operations will be adversely affected.

19

---

If
we dont compete effectively in the market for embedded processors, our business will
be adversely affected. Competition in the market for embedded processors is intense. Our
products compete with those of other designers and developers of processors and cores, as
well as those of semiconductor manufacturers whose product lines include processors for
embedded and non-embedded applications. In addition, we may face competition from the
producers of unauthorized MIPS-based clones and non-RISC based technology designs. The
market for embedded processors has recently faced downward pricing pressures on products.
We cannot assure you that we will be able to compete successfully or that competitive
pressure will not materially and adversely affect our business, results of operations and
financial condition.

In
order to be successful in marketing our products to semiconductor companies, we must
differentiate our processors, cores and related designs from those available or under
development by the internal design groups of these companies, including some of our
current and prospective licensees. Many of these internal design groups have substantial
engineering and design resources and are part of larger organizations with substantial
financial and marketing resources. These internal design groups may develop products that
compete with ours.

Some
of our existing competitors, as well as a number of potential new competitors, have longer
operating histories, greater brand recognition, larger customer bases as well as greater
financial and marketing resources than we do. This may allow them to respond more quickly
than we can to new or emerging technologies and changes in customer requirements. It may
also allow them to devote greater resources than we can to the development and promotion
of their technologies and products.

We
depend on design wins to expand our revenue base. Our ability to generate royalties is
uncertain and depends in large part on whether our processors and related designs are
selected by our licensees and their customers for design, which we refer to as design
wins, into a broader range of both digital consumer and business products. Our ability to
achieve design wins is subject to several risks and uncertainties, including:

| |  | the
potentially limited opportunities for design wins with respect to certain digital
consumer products, such as video game products or digital television set top boxes, due
to a limited number of product manufacturers and the length of product life cycles; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
risk that the performance, functionality, price and power characteristics of our designs
may not satisfy those that are critical to specific digital consumer and business product
applications.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Even
if our technology is incorporated into new products, we cannot be certain that any such
products will ultimately be brought to market, achieve commercial acceptance or generate
meaningful royalties for us.

We
depend on royalties from the sale of products incorporating our technology, and we have
limited visibility as to the timing and amount of such sales. Our success in achieving
design wins with our customers does not assure us of future revenue, as our revenue from
these customers depends on our receipt of royalties from the sales of products that use
our technology. Frequently, these sales are based on the sales of products incorporating
the semiconductors or other products of our licensees, and as a result we do not have
direct access to information that will help us anticipate the timing and amount of future
royalties. Our success is linked to the success of our licensees and, in the case of our
semiconductor company licensees, the success of their customers. Factors that negatively
affect our licensees and their customers could adversely affect our business. The success
of our direct and indirect customers is subject to a number of factors, including:

| |  | the
competition these companies face and the market acceptance of their products;
| | - | ---------------------------------------------------------------------------------

| |  | the
engineering, marketing and management capabilities of these companies and technical
challenges unrelated to our technology that they face in developing their products; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | their
financial and other resources.
| | - | ------------------------------------

Because
we do not control the business practices of our licensees and their customers, we have
little influence on the degree to which our licensees promote our technology and do not
set the prices at which products incorporating our technology are sold.

20

---

We
depend on the emerging markets for digital consumer and business products and customer
acceptance of the products that integrate our technology. The digital consumer and
business products industries are presently the primary market for our processor, core and
related designs. The markets for digital consumer and business products are relatively new
and emerging, and our success will depend largely on the level of interest in digital
consumer and business products, many of which have only recently been introduced to the
market. For us to grow, it is necessary that a significant number of additional products
incorporating our technology be developed and successfully marketed. Further, customer
acceptance of both consumer and business products may be hampered during periods of
general economic uncertainty, as many consumers and businesses might delay their purchase
decisions. We cannot assure you that any products that incorporate our technology will
achieve commercial acceptance or generate meaningful royalties for us. Our dependence on
the digital consumer and business products industries involves several risks and
uncertainties, including:

| |  | changes
in customer requirements and preferences; and
| | - | -----------------------------------------------------

| |  | the
 introduction  of products by our  competitors  embodying new  technologies or
                  features.
| | - | --------------------------------------------------------------------------------------------------------------

We
depend on semiconductor companies and digital consumer and business product manufacturers
to adopt our technology and use it in the products they sell. The adoption and continued
use of our technology by semiconductor companies and digital consumer and business product
manufacturers is essential to our continued success. We face numerous risks in obtaining
agreements with semiconductor companies and digital consumer and business product
manufacturers on acceptable terms, including:

| |  | potential
 competition with the internal design teams of  semiconductor  companies
                  and digital consumer and business product manufacturers;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | competition
from other semiconductor intellectual property providers;
| | - | ---------------------------------------------------------------------

| |  | potential
difficulties in persuading large semiconductor companies and digital consumer and
business product manufacturers to work with us, to rely on us for critical technology,
and to disclose to us proprietary manufacturing technology; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | potential
difficulties in persuading potential licensees to bear certain development costs
associated with our technology and to produce embedded processors using our technology.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
cannot assure you that we will be able to maintain our current relationships with our
licensees or establish new relationships with additional licensees, and any failure by us
to do so could have a material adverse effect on our business. In addition, we may devote
substantial resources to the pursuit of a relationship with a potential licensee that
ultimately is not successful.

Our
ability to achieve design wins may be limited unless we are able to develop enhancements
and new generations of our intellectual property. Our future success will depend, in part,
on our ability to develop enhancements and new generations of our processors, cores and
other intellectual property that satisfy the requirements of specific product applications
and introduce these new technologies to the marketplace in a timely manner. If our
development efforts are not successful or are significantly delayed, or if the
characteristics of our processor, core and related designs are not compatible with the
requirements of specific product applications, our ability to achieve design wins may be
limited. Our failure to achieve a significant number of design wins would adversely affect
our business, results of operations and financial condition.

Technical
innovations of the type critical to our success are inherently complex and involve several
risks, including:

| |  | our
ability to anticipate and timely respond to changes in the requirements of semiconductor
companies, and original equipment manufacturers, or OEMs, of digital consumer and
business products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
 ability  to  anticipate  and  timely  respond  to  changes  in  semiconductor
                  manufacturing processes;
| | - | -----------------------------------------------------------------------------------------------------------------------------

| |  | changing
 customer  preferences  in the digital  consumer  and  business  products
                  markets;
| | - | -------------------------------------------------------------------------------------------------------------

| |  | the
 emergence  of new  standards  in the  semiconductor  industry and for digital
                  consumer and business products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

21

---

| |  | the
 significant  investment in a potential  product that is often required before commercial
viability is determined; and
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | the
 introduction  by our  competitors of products  embodying new  technologies or
                  features.
| | - | --------------------------------------------------------------------------------------------------------------

Our
failure to adequately address these risks could render our existing processor, core and
related designs obsolete and adversely affect our business, results of operations and
financial condition. In addition, we cannot assure you that we will have the financial and
other resources necessary to develop processor, core and related designs in the future, or
that any enhancements or new generations of the technology that we develop will generate
revenue sufficient to cover or exceed the costs of development.

We
may encounter difficulties with future acquisitions, which could harm our business. As
part of our business strategy, in the future we may seek to acquire or invest in
businesses or technologies that we believe can complement or expand our business, enhance
our technical capabilities or that may otherwise offer growth opportunities. Any future
acquisitions may require debt or equity financing, or the issuance of shares in the
transaction, any of which could increase our leverage or be dilutive to our existing
stockholders. We may not be able to complete acquisitions or strategic customer
transactions on terms that are acceptable, or at all. We may incur charges related to
acquisitions or investments that are completed. For instance, we recorded an in-process
research and development charge in the second quarter of fiscal 2002 and the first quarter
of fiscal 2003 as a result of our acquisition of certain technology. We will also face
challenges integrating acquired businesses and operations and assimilating and managing
the personnel of the acquired operations. Geographic distances may further complicate the
difficulties of this integration. The integration of acquired businesses may not be
successful and could result in disruption to other parts of our business. Acquisitions
involve a number of other risks and challenges, including:

| |  | diversion
of management's attention;
| | - | ------------------------------------

| |  | potential
loss of key employees and customers of the acquired companies;
| | - | ------------------------------------------------------------------------

| |  | exposure
to unanticipated contingent liabilities of acquired companies; and
| | - | ---------------------------------------------------------------------------

| |  | use
of substantial  portions of our available  cash to consummate the  acquisition
                  and/or operate the acquired business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

Any
of these and other factors could harm our ability to realize the anticipated benefits of
an acquisition.

We
may also make investments in other companies, particularly private companies, such as the
investment we made in Lexra, Inc. in the second quarter of fiscal 2002, where we feel
these investments offer strategic opportunities. These investments tend to be inherently
risky because the companies are frequently in the development stage and depend on future
third party investments to finance their operations. If the companies in which we invest
do not secure the requisite financing or secure it at a lower enterprise valuation than
was in effect when we invested, we may be required to take an impairment charge to reduce
the carrying value of our investment, such as the impairment charge of $1.4 million we
recorded in the second quarter of fiscal 2003 for the total value of our investment in
Lexra, Inc.

We
have recorded long-lived assets, and our results of operations would be adversely affected
if their value becomes impaired. In the second quarter of fiscal 2002 and in both the
first and second quarters of fiscal 2003, we acquired certain core and developed
technologies and patent and patent applications, and the purchase price of these
long-lived assets is being amortized over schedules based on their useful lives. If we
complete additional acquisitions in the future, our purchased intangible assets
amortization charge could increase, and we may be required to record substantial amounts
of goodwill. We evaluate our long-lived assets, including purchased assets, for impairment
on an annual basis or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable from its estimated future cash flows. In the second
quarter of fiscal 2003, we recorded an impairment charge of $1.2 million for purchased
developed technology acquired in December 2001. We recorded additional research and
development expenses of $696,000 in the fourth quarter of fiscal 2003 and $1.3 million in
the first quarter of fiscal 2004 related to the accelerated amortization and depreciation
of certain computer aided design tool and software assets whose estimated useful lives
were reduced because of the restructuring actions announced in the fourth quarter of
fiscal 2003.

22

---

In
the future, if we determine that our long-lived assets are impaired, we will have to
recognize additional charges for this impairment. We cannot be sure that we will not be
required to record additional long-lived asset impairment charges in the future.

We
may incur additional restructuring charges in the future, which could harm our results of
operations. During fiscal 2003, we implemented a restructuring plan in October 2002 and
implemented another restructuring plan in May 2003, which was completed by the end of the
first quarter of fiscal 2004. In the second quarter of fiscal 2003, we announced the
closure of our Denmark design center and reorganized our sales and marketing functions,
which resulted in our recording of a restructuring charge of $7.6 million. Included in
this restructuring charge was an accrual for an estimated charge for vacating our Denmark
facilities. Rental property market conditions have fluctuated greatly in the past, and we
expect that these will continue to fluctuate in the future, due to such factors as changes
in property occupancy rates and the rental prices charged for comparable properties. If as
a result of changes in these conditions, we determine that the facilities restructuring
accrual is insufficient, we would be required to take an additional charge, such as the
restructuring charge of $1.4 million we recorded in the first quarter of fiscal 2004 for a
reduction in the estimated amount of sublease income. In addition, in the fourth quarter
of fiscal 2003, we announced a restructuring plan intended to reduce our operating
expenses, including terminating approximately one-third of our workforce. These activities
resulted in a charge of approximately $2.6 million in fiscal 2003. An additional charge of
$1.8 million was incurred during the first quarter of fiscal 2004 upon termination of our
custom core development effort at the end of September 2003. These restructuring
activities may not be sufficient to appropriately align our operating expenses with our
revenue expectations. If we have not sufficiently reduced operating expenses or if
revenues are below our expectations, we may be required to engage in additional
restructuring activities, which could result in additional restructuring charges. Any
restructuring charges could harm our results of operations.

Our
intellectual property may be misappropriated or subject to claims of infringement.
Policing the unauthorized use of our intellectual property is difficult, and we cannot be
certain that the steps we have taken will prevent the misappropriation or unauthorized use
of our technologies, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. In addition, we cannot be certain
that we will be able to prevent other parties from designing and marketing unauthorized
MIPS-based products or that others will not independently develop or otherwise acquire the
same or substantially equivalent technologies as ours. Moreover, cross licensing
arrangements, in which we license certain of our patents but do not generally transfer
know-how or other proprietary information, may facilitate the ability of cross-licensees,
either alone or in conjunction with others, to develop competitive products and designs.

We
cannot assure you that any of our patent applications will be approved or that any of the
patents or other intellectual property rights that we own or use will not be challenged,
invalidated or circumvented by others or be of sufficient scope or strength to provide us
with any meaningful protection or commercial advantage. Significant litigation regarding
intellectual property rights exists in our industry. We cannot be certain that third
parties will not make a claim of infringement against us, our licensees, or our
licensees customers in connection with use of our technology. Any claims, even those
without merit, could be time consuming to defend, result in costly litigation and/or
require us to enter into royalty or licensing agreements. These royalty or licensing
agreements, if required, may not be available to us on acceptable terms or at all. A
successful claim of infringement against us or one of our licensees in connection with its
use of our technology could adversely affect our business.

We
depend on our key personnel to succeed. Our success depends to a significant extent on the
continued contributions of our key management, technical, sales and marketing personnel,
many of whom are highly skilled and difficult to replace. We cannot assure you that we
will retain our key officers and employees. Competition for qualified personnel,
particularly those with significant experience in the semiconductor and processor design
industries, remains intense. The loss of the services of any of our key personnel or our
inability to attract and retain qualified personnel in the future could make it difficult
to meet key objectives, such as timely and effective project milestones and product
introductions which could adversely affect our business, results of operations and
financial condition. In addition, our restructurings and the effects on our business of
the ongoing economic slowdown may have an adverse effect on employee morale and creates
concern among existing employees about job security and, as a result, key employees may be
more likely to seek other employment opportunities.

23

---

ITEM 3.   QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We
are exposed to interest rate risk on investments of our excess cash. The primary objective
of our investment activities is to preserve capital. To achieve this objective and
minimize the exposure due to adverse shifts in interest rates, we invest in high quality
short-term maturity commercial paper, municipal bonds, and money market funds operated by
reputable financial institutions in the United States. Due to the nature of our
investments, we believe that we do not have a material interest rate risk exposure.

We
are exposed to fluctuations in currency exchange rates because a substantial portion of
our revenue has been, and is expected to continue to be, derived from customers located
outside the United States. To date, substantially all of our revenue from international
customers has been denominated in U.S. dollars. Because we cannot predict the amount of
non-U.S. dollar denominated revenue earned by our licensees, we have not historically
attempted to mitigate the effect that currency fluctuations may have on our revenue, and
we do not presently intend to do so in the future.

ITEM 4.   CONTROLS AND
PROCEDURES

| | (a.) | The
Securities and Exchange Commission defines the term disclosure           controls
and  proceduresto mean a companys controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported, within the time periods specified in the Commissions rules and forms.
Our chief executive officer and our chief financial officer have concluded, based on the
evaluation of the effectiveness of our disclosure controls and procedures by our
management, with the participation of our chief executive officer and our chief financial
officer, as of the end of the period covered by this report, that our disclosure controls
and procedures were effective for this purpose.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b.) | During
the quarter ended December 31, 2003, there were no changes in our                internal
control over financial reporting that have materially affected or are
               reasonably likely to materially affect our internal control over financial
               reporting.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

---

PART II  OTHER
INFORMATION

ITEM 5.  SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

| | (a) | We
held our Annual Meeting of Stockholders on November 12, 2003. Proxies for the
               meeting were solicited pursuant to Regulation 14A.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The
matters described below were voted on at the Annual Meeting of Stockholders
               and the number of votes cast with respect to each matter and with respect
to the                election of directors were as indicated.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | Holders
of Class B common stock voted to elect two Class B directors to serve for                a
three-year term as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------

| |  | For | Against              | Withheld | Non-Vote
| |  | --- | -------------------- | -------- | --------
| |  |     | Fred M. Gibbons      |          |         
| |  |     | Benjamin A. Horowitz |          |         

| | (2) | Holders
of Class A common stock and Class B common stock voted to ratify the appointment
of Ernst & Young LLP as our independent auditors for the fiscal year ending June 30,
2004 as follows:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | For | Against | Withheld | Non-Vote
| |  | --- | ------- | -------- | --------
| |  |     |         |          |         

| | (3) | Holders
of Class A common stock and Class B common stock voted to approve the
               amendment and restatement of MIPS Technologies Certificate of
               Incorporation to consolidate the Class A common stock and Class B common
stock                into a single class of common stock and, simultaneously, to convert
each                outstanding share of Class A common stock and Class B common stock
into one                share of common stock.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Common Stock | For | Against | Withheld | Non-Vote
| | ------------ | --- | ------- | -------- | --------
| |              |     | Class A |          |         
| |              |     | Class B |          |         

ITEM 6.  EXHIBITS AND
REPORTS ON FORM 8-K

| | (a) | Exhibits
| | --- | --------

| | 31.1 | Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------

| | 31.2 | Certification
 of  Chief  Financial   Officer  pursuant  to  Section  302  of  the Sarbanes-Oxley Act
of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification
 of  Chief  Executive   Officer  pursuant  to  Section  906  of  the Sarbanes-Oxley Act
of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------

25

---

| | (b) | Reports
on Form 8-K
| | --- | -------------------

| | A
Form 8-K was filed on November 13, 2003. The Form 8-K reported that on November 12, 2003,
the Company issued a press release announcing that its stockholders voted to combine the
outstanding shares of Class A common stock and Class B common stock into one class of
common stock. A copy of the press release was filed as an exhibit to the Form 8-K.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
Form 8-K was filed on November 14, 2003. The Form 8-K reported that on November 12, 2003,
the board of directors of the Company amended the Companys By-Laws to be effective
November 14, 2003. A copy of the Companys Amended and Restated By-Laws was filed as
an exhibit to the Form 8-K. The Form 8-K also reported that on November 13, 2003, the
Company filed with the Delaware Secretary of State its Amended and Restated Certificate
of Incorporation to be effective on November 14, 2003. A copy of the Companys
Amended and Restated Certificate of Incorporation was filed as an exhibit to the Form
8-K. The Form 8-K also reported that on November 13, 2003, the Company issued a press
release announcing that all shares of the Companys combined common stock would
trade under the ticker symbol MIPS commencing November 14, 2003.
A copy of the press release was filed as an exhibit to the Form 8-K
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEMS 1,2, 3, AND 5 ARE NOT
APPLICABLE AND HAVE BEEN OMITTED.

26

---

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.

| |                                             
| | --------------------------------------------
| | MIPS Technologies, Inc.                     
| | a Delaware corporation                      
|
| | By:     /s/ KEVIN C. EICHLER                
| | Kevin C. Eichler                            
| | Vice President and Chief Financial Officer  
| | (Principal Financial and Accounting Officer)

Dated:  February 11, 2004

27

---