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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 ACT OF 1934.
|-----------------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED March 31, 2005

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 Exchange Act). Yes [X ] No [ ]

As
of April 29, 2005, the number of outstanding shares of the registrants common
stock, $0.001 par value, was 42,442,058.

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|                                                                                               | 
|---------------------------------------------------------------------------------------------- | 
|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 Financial Condition and Results of Operations | 
|                                                                                               | 
|                                                                                               | 
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                            | 
|                                                                                               | 
|Item 4.  Controls and Procedures                                                               | 
|                                                                                               | 
|PART II - OTHER INFORMATION                                                                   
|                                                                                               | 
|Item 1.  Legal Proceedings                                                                     | 
|Item 6.  Exhibits and Reports on Form 8-K                                                      | 
|                                                                                               | 
|Signatures                                                                                     | 

2

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# PART I - FINANCIAL
INFORMATION

ITEM 1.    FINANCIAL
STATEMENTS

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

|                                          | March 31,
2005 | June 30,
2004
|----------------------------------------- | -------------- | -------------
|
|Current assets:                           |                |              
|Cash and cash equivalents                 |                |              
|Short-term investments                    |                |              
|Accounts receivable                       |                |              
|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                     |                |              
|                                          |                |              
|                                          |                |              
|Commitments and Contingencies             |                |              
|Stockholders' equity:                     |                |              
|Common stock                              |                |              
|Additional paid-in capital                |                |              
|Accumulated other comprehensive income    |                |              
|Deferred compensation                     |                |              
|Accumulated deficit                       |                |              
|                                          |                |              
|Total stockholders' equity                |                |              
|                                          |                |              
|                                          |                |              
|                                          |                |              

See accompanying notes.

3

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

|                                                             | Three Months Ended
March 31, | Nine Months Ended
March 31,
|------------------------------------------------------------ | ---------------------------- | ---------------------------
|
|Revenue:                                                     |                              |                            
|Royalties                                                    |                              |                            
|Contract revenue                                             |                              |                            
|                                                             |                              |                            
|Total revenue                                                |                              |                            
|Costs and expenses:                                          |                              |                            
|Research and development                                     |                              |                            
|Sales and marketing                                          |                              |                            
|General and administrative                                   |                              |                            
|Restructuring                                                |                              |                            
|                                                             |                              |                            
|Total costs and expenses                                     |                              |                            
|                                                             |                              |                            
|Operating income (loss)                                      |                              |                            
|Other income, 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

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

|                                                                                         | Nine Months Ended March 31,
|---------------------------------------------------------------------------------------- | ---------------------------
|
|Operating activities:                                                                    |                            
|Net income (loss)                                                                        |                            
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                            
|Depreciation                                                                             |                            
|Amortization of intangibles and stock based compensation                                 |                            
|Other non-cash items                                                                     |                            
|Changes in operating assets and liabilities:                                             |                            
|Accounts receivable                                                                      |                            
|Prepaid expenses and other current assets                                                |                            
|Other assets                                                                             |                            
|Accounts payable                                                                         |                            
|Accrued compensation                                                                     |                            
|Other current accrued liabilities                                                        |                            
|Income tax payable                                                                       |                            
|Deferred revenue                                                                         |                            
|Long-term liabilities                                                                    |                            
|                                                                                         |                            
|Net cash provided by operating activities                                                |                            
|Investing activities:                                                                    |                            
|Purchases of short-term investments                                                      |                            
|Maturities of short-term investments                                                     |                            
|Capital expenditures                                                                     |                            
|                                                                                         |                            
|Net cash used in investing activities                                                    |                            
|Financing activities:                                                                    |                            
|Net proceeds from issuance of common stock under employee stock plans                    |                            
|                                                                                         |                            
|Net cash provided by financing activities                                                |                            
|Effect of exchange rate on cash and cash equivalents                                     |                            
|                                                                                         |                            
|Net increase (decrease) in cash and cash equivalents                                     |                            
|Cash and cash equivalents, beginning of period                                           |                            
|                                                                                         |                            
|Cash and cash equivalents, end of period                                                 |                            
|                                                                                         |                            

See accompanying notes.

5

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MIPS TECHNOLOGIES, INC.

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Note 1.     Description of
Business and Basis of Presentation

We
are a leading provider of industry-standard processor architectures and cores for digital
consumer and business applications. We design and license high performance 32- and 64-bit
architectures and cores, which offer smaller dimensions and greater energy efficiency in
embedded processors. Our technology is utilized in such high-growth embedded markets as
digital set-top boxes, digital televisions, DVD recordable devices, broadband access
devices, digital cameras, laser printers and network routers.

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 of normal recurring adjustments) 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 the annual audited consolidated financial statements prepared in accordance
with United States 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, 2004 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, 2004, included in our 2004 Annual 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.

Stock-Based
Compensation. We have adopted the disclosure requirements of Statement of Financial
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 No. 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 grant 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 was $207,000 and $601,000 for the
three-month and nine-month periods ending March 31, 2005 compared to $160,000 and $481,000
for the three-month and nine-month periods ending March 31, 2004.

Pro
forma information regarding net income (loss) and net income (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 No. 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.

6

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Our
pro forma information is as follows (in thousands, except per share data):

|                                                                   | Three Months Ended March
31, | Nine Months Ended March
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 related tax effects     |                              |                            
|                                                                   |                              |                            
|Pro forma net income (loss)                                        |                              |                            
|                                                                   |                              |                            
|Basic net income (loss) per share:                                 |                              |                            
|As reported                                                        |                              |                            
|                                                                   |                              |                            
|Pro forma                                                          |                              |                            
|                                                                   |                              |                            
|Diluted net income (loss) per share:                               |                              |                            
|As reported                                                        |                              |                            
|                                                                   |                              |                            
|Pro forma                                                          |                              |                            
|                                                                   |                              |                            

The historical
pro forma impact of applying the fair value method prescribed by SFAS No. 123 is not
representative of the impact that may be expected in the future due to changes resulting
from additional grants in future years.

There
were no purchases of our common stock under our stock purchase plans during the third
quarter of fiscal 2005, and 222,000 shares were purchased in the first nine months of
fiscal 2005. Employees exercised options to purchase 598,000 shares of our common stock
under our stock option plans in the third quarter of fiscal 2005 and 999,000 shares in the
first nine months of fiscal 2005.

7

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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
March 31, | Nine Months Ended
March 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 stock options and restricted shares were excluded from          |                              |                            
|net income per diluted share because they are anti-dilutive                           |                              |                            

Note 3.   Comprehensive
Income (Loss)

Total
comprehensive income (loss) includes net income (loss) and other comprehensive income,
which primarily comprises unrealized gains and losses from foreign currency translation
adjustments. Total comprehensive income for the third quarter of fiscal 2005 was $4.0
million and the first nine months of fiscal 2005 was $10.9 million compared to total
comprehensive income of $1.2 million and total comprehensive loss of $3.8 million for the
comparable periods in the prior year.

Note 4.   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 March
31, 2005 and June 30, 2004 (in thousands):

|                            | March 31, 2005 | June 30, 2004
|--------------------------- | -------------- | -------------
|
|Developed technology        |                |              
|Core/patent  technology     |                |              
|                            |                |              
|Purchased intangible assets |                |              
|                            |                |              

8

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Goodwill,
recorded in fiscal year 2003 as a result of the acquisition of Algorithmics, Limited, a
tool chain company based in the United Kingdom and an affiliated company, DFS3 Limited,
was $248,000 as of March 31, 2005 and June 30, 2004.

The
estimated future amortization expense of purchased intangible assets as of March 31, 2005
is approximately $137,000, $549,000, $549,000, $549,000 and $341,000 for the remaining
three months of fiscal 2005 and for fiscal years 2006, 2007, 2008 and 2009, respectively,
and approximately $387,000 for years following fiscal 2009. Amortization expense for
purchased intangible assets included in costs and expenses was $137,000 in the third
quarter of fiscal 2005 and $416,000 for the first nine months of fiscal 2005 compared to
$148,000 and $445,000 for the comparable periods of fiscal 2004.

Note 5.   Restructuring
Charge

Restructuring
charges consist of multiple actions taken in fiscal 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 then
recently acquired design center in the United Kingdom. We implemented plans to eliminate
67 regular positions, or about 30% of our then global workforce, 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
expenses 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 other assets
were accounted for under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. All employees had been terminated as of June 30, 2003.

A
summary of the October 2002 restructuring activities as of March 31, 2005 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                 |             | $    
|Adjustments                                     |           |            |                            | (85                   | )           |      
|Cash charges                                    |           |            |                            | (3,338                | )           |      
|Non-cash charges                                |           |            |                            | 94                    |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2003                        |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|Non-cash charges                                |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2004                        |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|Non-cash charges                                |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|Balance at March, 2004                          |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      

9

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The
$1.7 million estimated charge 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. Based
on an assessment of comparable commercial properties in the Copenhagen, Denmark real
estate market, 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 on market conditions in Denmark
received subsequent to the first quarter of fiscal 2004. We estimated that an additional
18 months from March 2004 would elapse before we may be able to sublease the facility, and
that the amount of sublease income during the remainder of the lease term would be $3.4
million. These revised estimates resulted in a charge to restructuring during the first
quarter of fiscal 2004 of $1.4 million. On September 28, 2004, we entered into an
agreement with the landlord and a new tenant to terminate our long-term lease obligation
in return for a lump sum payment of approximately $1.9 million. This resulted in an
additional charge to restructuring in the first quarter of fiscal 2005 of $277,000.

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 No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

May 2003 Restructuring
Activities

In
May 2003, we announced a restructuring plan that included the termination of approximately
57 regular employees and contractors to be completed during fiscal 2004. These activities
resulted in a restructuring charge of approximately $2.6 million in fiscal 2003 and
additional restructuring charges of approximately $1.8 million in fiscal 2004. These costs
and activities were accounted for under FAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. As of December 31, 2003, all employees and contractors had
been terminated and all payments made under this activity.

Note 6.   Interest Income

Interest
income reported under other income, net was $575,000 for the third quarter of fiscal 2005
and $1,292,000 for the first nine-month periods of fiscal 2005 and $208,000 and $589,000 in
the comparable periods of fiscal 2004.

Note 7.   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 $25.50 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.

10

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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 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. In
addition, the employees have made a claim for holiday pay and holiday supplement based on
the value of stock options at the time of grant.

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. Further, the amount of any loss would presumably depend on the future price of
shares of our common stock.

On
April 11, 2005, MIPS Technologies, Inc. filed a lawsuit in the U.S. federal court
(Northern District of California) against terminated employees who have pending Danish
claims against MIPS AG. This action seeks a declaratory judgment that terminated employees
are not entitled to continued stock option vesting after their employment ended, or the
right to exercise vested options more than three months thereafter. Our lawsuit also seeks
injunctive relief and damages for breach of contract, as these employees signed stock
option agreements with governing law and exclusive venue provisions.

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 8.   Recent Accounting
Pronouncements

In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123
(revised 2004) Share-Based Payment (SFAS No. 123R), which replaces SFAS No. 123 and
supersedes APB No. 25. SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements
based on their fair values beginning with the first interim or annual period after June
15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted
under SFAS No. 123 will no longer be an alternative to financial statement recognition. We
are required to adopt SFAS No. 123R in the first quarter of fiscal 2006, beginning July 1,
2005. Under SFAS No. 123R, we must determine the appropriate fair value model to be used
for valuing share-based payments, the amortization method of compensation cost and the
transition method to be used at date of adoption. The transition methods include
retroactive and prospective adoption options. Under the retroactive option, prior periods
may be restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded for all
unvested stock options and restricted stock at the beginning of the first quarter of
adoption of SFAS No. 123R, while the retroactive method would record compensation expense
for all unvested stock options and restricted stock beginning with the first period
restated. We are evaluating the requirements of SFAS No. 123R and expect that the adoption
of SFAS No. 123R will have a material impact on our consolidated results of operations and
earnings per share. We have not yet determined the method of adoption or the effect of
adopting SFAS No. 123R, and we have not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS No. 123.

11

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

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. Forward-looking statements within this Quarterly Report on Form 10-Q
include those that address our expectations for future levels of revenue and operating
expenses as well as other expenses and 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

We
are a leading provider of industry-standard processor architectures and cores for digital
consumer and business applications. We design and license high performance 32- and 64-bit
architectures and cores, which offer smaller dimensions and greater energy efficiency in
embedded processors. Our technology is utilized in such high-growth embedded markets as
digital set-top boxes, digital televisions, DVD recordable devices, broadband access
devices, digital cameras, laser printers and network routers.

We
entered fiscal 2005 facing the challenge of maintaining our growth and profitability. We
have made significant progress in addressing this challenge during the first nine months
of fiscal 2005, achieving our eighth consecutive quarter of revenue growth in the quarter
ended March 31, 2005. The 33% year over year revenue growth in the third fiscal quarter of
2005 was due to an increase in both royalties and contract revenue. The 45% increase in
royalties in the third quarter was due to royalties from license agreements signed since
our initial public offering in June 1998. Royalties from these agreements contributed to
65% of our total royalties in the third quarter, up from 36% in the same quarter of fiscal
2004. Our high performance MIPS32 24K core family introduced in March 2004, along with our
established MIPS32 4K core family, contributed to the 23% growth in contract revenue. We
completed 11 new license agreements during the quarter, including four agreements for the
MIPS32 24K cores, with six of these new license agreements coming from new licensees. Our
customer base is now in excess of 100 licensees. Our net income increased by 238% in the
third quarter compared to the same quarter a year ago and we achieved increased
profitability for the fifth consecutive quarter.

Looking
forward to the fourth fiscal quarter of 2005, we will need to continue to capitalize on
the momentum for the MIPS32 24K core family to grow our contract revenue. We expect that
our operating expenses will increase over the next several quarters as we continue to
invest in projects and programs to continue our growth momentum.

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. We periodically perform royalty
reviews of our licensees and if these reviews indicate any over- or under-reported
royalties, we accrue for the results as they are known. Our ability to diversify our
revenue base will depend primarily on the number and variety of design wins we obtain from
digital consumer product and business equipment manufacturers, and consumer acceptance of
products that incorporate our technology. We generally do not have a direct contractual
relationship with digital consumer product manufacturers, and the royalty reports
submitted by our licensees generally do not disclose which consumer products include our
technology. As a result, it is difficult for us to identify or predict the extent to which
our future revenue will depend upon a particular digital consumer product or product
manufacturer.

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 (referred to as SAB) No. 104, 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 or 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 as services are performed.

12

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Our
revenue in the three-month and nine-month periods ended March 31, 2005 and 2004 was as
follows (in thousands):

|                            | Three Months Ended March 31, | Nine Months Ended March 31,
|--------------------------- | ---------------------------- | ---------------------------
|
|Revenue                     |                              |                            
|Royalties                   |                              |                            
|Percentage of Total Revenue |                              |                            
|Contract Revenue            |                              |                            
|Percentage of Total Revenue |                              |                            
|Total Revenue               |                              |                            
|                            |                              |                            

The
increase in revenue for the third quarter and first nine months of fiscal 2005 over the
comparable periods in fiscal 2004 was due to an increase in both royalties and contract
revenues. The increase in royalties was due primarily to an increase in royalties from
license agreements signed since our initial public offering in June 1998 of $3.4 million
for the third quarter and $9.5 million for the first nine months of fiscal 2005, as
customers under these agreements are shipping more products incorporating our technology.
This increase was offset in part by a decrease in royalties from legacy agreements (signed
before 1998) of $755,000 for the third quarter and $3.5 million for the first nine months
of fiscal 2005. We periodically perform royalty reviews of our licensees and if these
reviews indicate any over- or under-reported royalties, we accrue for the results when
they are identified. As a result of a review of one of our licensees, we determined that
there had been an over reporting of royalties to us and, accordingly, the royalty revenue
in the second quarter and the first nine months of fiscal 2005 decreased by $900,000.
While an adjustment of this nature and magnitude is infrequent, differences from amounts
reported by our licensees, both over and under, may arise from time to time in the future.
Prior to the current year the results of these reviews have not been significant.

The
increase in contract revenue was primarily due to an increase in fees generated from new
and existing license agreements for developed technology of $1.9 million for the third
quarter and $8.3 million for the first nine months of fiscal 2005. The increase in fees
for developed technology for the third quarter was due to an increase of $954,000
generated from the MIPS32 4K core family and an increase of $860,000 from the MIPS32
24Kcore family that was introduced in March 2004. The increase in fees for developed
technology in the first nine months of fiscal 2005 was primarily due to an increase of
$8.5 million generated from the MIPS32 24K core family. This was offset in part by a
decline in contract revenue generated from engineering services contracts for technology
under development of $649,000 for the third quarter and $1.4 million during the first nine
months of fiscal 2005 due to fewer agreements in place for the development of products
than in the comparable period in fiscal 2004.

Cost
and Expenses. Our costs and expenses for the three-month and nine-month periods ended
March 31, 2005 and 2004 were as follows (in thousands):

|                           | Three Months Ended March 31, | Nine Months Ended March 31,
|-------------------------- | ---------------------------- | ---------------------------
|
|Cost and Expenses          |                              |                            
|Research and Development   |                              |                            
|Sales and Marketing        |                              |                            
|General and Administrative |                              |                            

13

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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.

The
increase in research and development expenses for the third quarter of fiscal 2005 over
the comparable period in fiscal 2004 was primarily due to a $672,000 increase in salaries
and benefits and hiring costs related to increased headcount, a $388,000 increase in bonus
related to an increase in the number of eligible participants and profit sharing expense
due to an increase in company profits. These factors were partially offset by a $237,000
decrease in depreciation expenses as assets have become fully depreciated and amortized
and a $249,000 decrease in consulting expenses due to a consulting project completed in
the third quarter of fiscal 2004.

The
decrease in research and development expenses for the first nine months of fiscal 2005
over the comparable period in fiscal 2004 was primarily the result of a reduction in cost
of approximately $3.5 million related to the termination of our custom core development
team in September 2003, which consisted of a decrease in computer-aided design tool
amortization expenses of $2.1 million, a decline in depreciation expenses of $1.2 million
and a decrease in salary expenses of $271,000. These decreases were offset in part by an
increase in bonus and profit sharing expenses of $1.0 million due to the reinstatement of
our bonus and profit sharing plans. We expect our research and development expenses to
continue to increase over the next few quarters as we invest in additional projects to
support future growth.

Sales
and Marketing. The increase in sales and marketing expenses in the third quarter of fiscal
2005 was primarily due to an increase in salary and benefits expenses of $419,000 related
to increases in headcount and an increase in commission and bonus expenses of $208,000 as
a result of an increase in commissionable contract revenue and an increase in bonus and
profit sharing expenses. In addition, spending on marketing communications, consulting,
and third party development tools increased by $223,000 due to an increase in projects and
tools requirements and the opening of our branch office in China during the quarter.

The
increase in sales and marketing expenses for the first nine months of fiscal 2005 was
primarily due to an increase of $798,000 in salary, benefits, and travel expenses due to
an increase in headcount. Commission, bonus and profit sharing expenses increased $596,000
due to an increase in commissionable contract revenue and higher pay out from our bonus
and profit sharing plans. In addition, marketing communications and consulting expenses
increased by $600,000 due to an increase in marketing projects during the period. We
expect that our sales and marketing expenses will increase over the next few quarters as
we deploy additional resources to expand our market presence.

General
and Administrative. The increase in general and administrative expenses in the third
quarter of fiscal 2005 was primarily due to increased fees for accounting and audit
services of $293,000 related to costs associated with Sarbanes-Oxley compliance,
additional royalty audits conducted during the quarter and the establishment of our branch
office in China. In addition, legal expenses increased by $212,000 as a result of
increased legal and patent activity.

The
increase in general and administrative expenses in the first nine months of fiscal 2005
was also due to an increase in accounting and audit services fees of $610,000 as a result
of costs associated with Sarbanes-Oxley compliance, additional royalty audits and the
establishment of our branch office in China and other international activity and an
increase in legal expense of $333,000 as a result of increased legal and patent activity.
In addition, salary expense increased by $260,000 due to increases in headcount. These
increases were offset in part by $177,000, as we were able to collect an outstanding
receivable that had previously been determined to be uncollectible during the first nine
months of fiscal 2004.

Restructuring
Charge. We recorded restructuring charges in the first quarter of fiscal 2005 and in the
first quarter of fiscal 2004 related to two actions initiated in fiscal 2003. In the
second quarter of fiscal 2003, we closed our Denmark design center, which occupied
approximately 44,600 square feet of technical office space under a long-term lease
arrangement to expire in July 2010. On September 28, 2004, we entered into an agreement
with the landlord and a new tenant to terminate our lease obligation in return for a lump
sum payment of approximately $1.9 million. This resulted in an additional restructuring
charge of $277,000 in the first quarter of fiscal 2005. The restructuring charge recorded
during the first quarter of fiscal 2004 of $3.2 million included approximately $1.8
million in employee severance costs related to the phase out initiated in May 2003 of our
design efforts with respect to the development of custom cores and a $1.4 million cost
increase due to a revised lower estimate of sublease income related to the Denmark design
center.

14

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Other
Income, net.Other income, net, for the third quarter of fiscal 2005 was $580,000 and for
the first nine months of fiscal 2005 was $1,194,000 compared to $182,000 and $497,000 for
the comparable periods in fiscal 2004. The increase in other income was primarily due to
an increase in interest income as a result of an increase in cash and investment balances
and higher interest rates.

Income
Taxes. We recorded an income tax provision of $788,000 for the third quarter of fiscal
2005 and $3.0 million for the first nine months of fiscal 2005. The estimated annual
effective tax rate of 22% for the first nine months of fiscal 2005 is lower than the
applicable statutory rate primarily due to the availability of foreign tax credit, general
business tax credit and net operating loss carryovers from prior years. The income tax
provision recorded for the third quarter of fiscal 2005 reflects a downward revision in
our estimated annual effective tax rate for the year due to certain adjustments recorded
as part of our international tax restructuring activities for our Swiss subsidiary during
the third quarter. We recorded an income tax provision of $1.1 million for the third
quarter of fiscal 2004 and $1.9 million for the first nine months of fiscal 2004
consisting of foreign income taxes and foreign withholding taxes. The estimated annual
effective tax rate for the first nine months of fiscal 2004 differs from the expected
benefit at the applicable statutory rate due to valuation allowances provided against
certain net operating losses.

A
transaction reported in our federal income tax return for fiscal year 2002 is currently
under examination by the Internal Revenue Service. A final adjustment was proposed by the
Internal Revenue Service at the end of third quarter of fiscal 2005 which we intend to
appeal. We believe that adequate amounts have been provided for any adjustment that may
ultimately result from this examination.

Financial Condition

At
March 31, 2005, we had cash, cash equivalents and short-term investments of $106.7 million
and total working capital of $98.9 million. Our principal requirements for cash are to
fund working capital needs, and, to a lesser extent, capital expenditures for equipment
purchases, licensing of computer-aided design tools used in our development activities and
acquisition of technologies and patents. The following table summarizes selected items (in
thousands) from our statement of cash flows for the nine months ended March 31, 2005 and
2004. For complete statements of cash flows for those periods, see the financial
statements in Item 1.

|                                                         | Nine Months Ended March 31,
|-------------------------------------------------------- | ---------------------------
|
|Net cash provided by operating activities                |                            
|Net income (loss)                                        |                            
|Depreciation                                             |                            
|Amortization of intangibles and stock based compensation |                            
|Accounts receivable                                      |                            
|Prepaid expenses and other current assets                |                            
|Other assets                                             |                            
|Other current accrued liabilities                        |                            
|Income tax payable                                       |                            
|Accrued compensation                                     |                            
|                                                         |                            
|Net cash used in investing activities                    |                            
|Net maturities (purchases) of short-term investments     |                            
|Capital expenditures                                     |                            
|                                                         |                            
|Net cash provided by financing activities                |                            
|Net proceeds from issuance of common stock               |                            
|                                                         |                            
|Net decrease in cash and cash equivalents                |                            

15

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For
the nine-month period ended March 31, 2005, our operating activities provided net cash of
$9.3 million primarily reflecting net income and adjusted for non-cash charges including
depreciation and amortization of intangibles. In addition, cash was generated by a
decrease in prepaid expenses due to amortization of our business insurance policy of
$767,000 and amortization of our computer-aided design licenses of $1.2 million.
Furthermore, income taxes payable increased due to our tax provision of $3.0 million for
the period, which was partially offset by tax payments made and foreign withholding taxes
on accounts receivable collections. The net cash provided by these sources was partially
offset by an increase in accounts receivable due to new license agreements signed near the
end of the quarter and a decrease in accrued compensation and other current accrued
liabilities. This decrease was primarily from payments under our restructuring plan for
our Denmark facility lease termination of $1.9 million, along with a decrease in accrued
compensation related to $1.5 million in executive bonus payments.

During
the nine months ended March 31, 2004, net cash provided by operating activities of $5.2
million consisted mainly of our net loss of $4.1 million, offset in part by non-cash
charges including depreciation and amortization along with a decrease in accounts
receivable due to collection of a large receivable outstanding at June 30, 2003, offset in
part by receivables from new agreements during the quarter. In addition, prepaid expenses
and other assets decreased due to the receipt of an income tax receivable of $630,000,
annual amortization of $996,000 related to our prepaid business insurance, and $2.3
million in amortization of our computer-aided design tool licenses. These were partially
offset by a decrease in accrued liabilities primarily due to payment of our annual
business insurance policy of $1.3 million, payment of accrued restructuring costs of $2.2
million due to the termination of employees during the period, partially offset by an
additional accrual of $1.4 million related to the closure of our Denmark facility, and an
accrual of $1.1 million for the purchase of a perpetual computer-aided design license.

Net
cash used in investing activities was $5.5 million for the nine months ended March 31,
2005, compared to $22.5 million for the comparable period in the prior year. Net cash used
in investing activities during the nine-month periods ended March 31, 2005 and March 31,
2004 included purchases of short-term investments and purchases of equipment and
computer-aided design tools used in our development activities.

Net
cash provided by financing activities was $4.8 million for the nine months ended March 31,
2005 compared to net cash provided of $714,000 for the comparable period in the prior
year. Net cash provided by financing activities during the nine-month period ended March
31, 2005 and March 31, 2004 was attributable to purchases under our employee stock plans.

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.

16

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Contractual Obligations

Our
contractual obligations as of March 31, 2005 were as follows:

|                                                               | Payments due by period (in thousands)
|-------------------------------------------------------------- | -------------------------------------
|
|Operating lease obligations (1)                                |                                      
|Purchase obligations (2)                                       |                                      
|Other long-term liabilities reflected on our Balance Sheet (3) |                                      
|                                                               |                                      
|Total                                                          |                                      
|                                                               |                                      

| | (1) | We
lease office facilities under non-cancelable operating leases that expire
               through 2009. In connection with the lease of our Mountain View
headquarter                facilities, we have entered into a letter of credit as a
security deposit with a                financial institution for $264,000, which is
guaranteed by a time-based                certificate of deposit. Operating lease
obligations decreased $5.6 million                compared to June 30, 2004, primarily
due to the termination of our long-term                lease obligation for the Denmark
design center.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Purchase
obligations represent outstanding purchase orders for ongoing                operations.
Payments of these obligations are subject to the provision of                services or
products. Purchase obligations decreased by $977,000 compared to                June 30,
2004 primarily due to payment of computer-aided design license                obligations
of approximately $1.3 million.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes
long-term liability to employees under a deferred compensation plan.
               Distributions under this plan are elected by the employees. Other
long-term                liabilities increased $810,000 compared to June 30, 2004,
primarily due to the                increase in employee contributions to the deferred
compensation plan.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting
Policies 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.

17

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We
believe the following critical accounting policies affect the significant judgments and
estimates we use in the preparation of our consolidated financial statements.

Revenue
Recognition. We recognize revenue upon concluding that all of the fundamental criteria for
revenue recognition have been met. 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. We
periodically perform royalty reviews of our licensees and if these reviews indicate any
over- or under-reported royalties, we accrue for the results when they are identified as
was the case in the second quarter of fiscal 2005 when we reduced our royalty revenue by
$900,000 due to an over-reporting by one of our licensees. Contract revenue includes
technology license fees for currently available technology or engineering service fees for
technology under development, and support and maintenance fees. Consistent with SAB No.
104, 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. We assess the credit worthiness of each
customer at the time the license agreement is executed or when a transaction under the
agreement occurs. If collectibility is not considered probable, revenue is recognized when
the fee is collected. Fees related to engineering services contracts for technology under
development, which contracts are performed on a best efforts basis, are recognized as
revenue as services are performed. 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 and generally priced as a percentage of license fees.

Income
Taxes. We account for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes, which requires that deferred tax assets and liabilities be recognized for the
effect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. SFAS No. 109
also requires that deferred tax assets be reduced by a valuation allowance if it is more
likely than not that some or all of the deferred tax asset will not be realized. We have
provided a full valuation allowance against our U.S. net deferred tax assets due to our
history of net losses, difficulty in forecasting future results and belief that we cannot
rely on projections of future taxable income to realize deferred tax assets. Significant
management judgment is required in determining our deferred tax assets and liabilities and
valuation allowances for purposes of assessing our ability to realize any future benefit
from our net deferred tax assets. We intend to maintain this valuation allowance until
sufficient positive evidence exists to support the reversal of the valuation allowance.
Future income tax expense will be reduced to the extent that we have sufficient positive
evidence to support a reversal of, or decrease in, our valuation allowance.

In
addition, the calculation of our tax liabilities involves dealing with uncertainties in
the application of complex tax regulations in a multitude of jurisdictions. We recognize
potential liabilities for anticipated tax audit issues in the U.S. and other tax
jurisdictions based on our estimate of whether, and the extent to which, additional taxes
will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal
of the liabilities would result in tax benefits being recognized in the period when we
determine the liabilities are no longer necessary. If our estimate of tax liabilities
proves to be less than the ultimate assessment, a further charge to expense would result.

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. Research and development expense included $1.7 million in
fiscal 2004 and $696,000 in fiscal 2003 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.

18

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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. If the
assumptions and estimates used to allocate the purchase price are subsequently revised in
light of new circumstances, purchase price adjustments, which could impact future
amortization of acquired assets, or asset impairment charges, could be required.

Accrued
Facilities Restructuring Costs. In October 2002, we exited our Denmark research facility,
and we recorded a restructuring charge in the second quarter of fiscal 2003 to reflect the
anticipated costs of the restructuring. Among other things, the anticipated costs included
lease charges that were based on assumptions about the estimated period to sublease the
facilities and future rental income. The sublease income estimate and the estimated period
to sublease the facility entail a high level of management judgment. 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. If, in the future, it is determined that our accrual is
insufficient, we would be required to record an additional charge which would have an
unfavorable impact on our financial statements in the period this was determined, as was
the case in the first quarter of fiscal 2004. On September 28, 2004, we entered into an
agreement with the landlord and a new tenant to terminate our lease obligation in return
for a lump sum payment of approximately $1.9 million. This resulted in an additional
charge to restructuring in the first quarter of fiscal 2005 of $277,000.

Factors That May Affect
Our Business

Our
success is subject to numerous risks 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 products that incorporate our technology;
| | - |  | --------------------------------------------------------

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

19

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The
success of our business depends on maintaining and growing our contract revenue. Contract
revenue consists of technology license fees paid for access to our developed technology
and engineering service fees related to technology under development. Our ability to
secure the licenses from which our contract revenues are derived depends on our customers,
including semiconductor companies, digital consumer and business product manufacturers,
adopting our technology and using it in the products they sell. Our contract revenue
declined in fiscal 2002 and fiscal 2003 and increased by 5% in fiscal 2004 and increased
43% for the first nine months of fiscal 2005. 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 or if our customers do not adopt our technology and obtain
corresponding licenses, our results of operations will be adversely affected.

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 receipt of royalties
from our licenses depends on our customers incorporating our technology into their
products, their bringing these products to market, and the success of these products. In
the case of our semiconductor customers, the amount of such sales is further dependent
upon the sale of the products by their customers into which our customers products
are incorporated. Thus, our ability to achieve design wins and enter into licensing
agreements does not assure us of future revenue. Any royalties that we are eligible to
receive 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. 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.

We
rely on our customers to correctly report to us the number or dollar value of products
incorporating our technology that they have sold, as these sales are the basis for the
royalty payments that they make to us. We have the right under our licensing agreements to
perform a royalty review of the customers sales so that we can verify the accuracy
of their reporting, and if we determine that there has been an over-reported or
under-reported amount of royalty, we account for the results when they are identified. By
way of an example, we determined in the second quarter of fiscal 2005, as a result of a
review, that one of our customers had inadvertently reported a higher level of royalty
than had actually occurred, and we accrued for this event as an offset against revenue in
the quarter.

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 other 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.

20

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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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 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; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our
failure to  identify  and  respond in a timely  manner to trends and  emerging
              markets for embedded processors.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

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.

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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| |  |  | 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 in excess of the costs of development.

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.

21

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Changes
in effective tax rates or adverse outcomes from examination of our income tax returns
could adversely affect our results.Our future effective tax rates could be adversely
affected by earnings being lower than anticipated in countries with low statutory tax
rates, by changes in the valuation of our deferred tax assets and liabilities, or by
changes in tax laws or the interpretation of tax laws. In addition, we are currently under
examination by the Internal Revenue Service regarding our federal income tax return for
fiscal year 2002. In March 2005, a final adjustment has been proposed by the Internal
Revenue Service which we intend to appeal. We believe that adequate amounts have been
provided for any adjustment that may ultimately result from this examination. We operate
in countries other than the United States and occasionally face inquiries and examinations
regarding tax matters in these countries. There can be no assurance that the outcomes from
our current examination or any other examinations will not have an adverse effect on our
operating results and financial condition.

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 to us, 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 first quarter of fiscal 2003 and the second quarter
of fiscal 2002 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
are subject to litigation that could adversely affect our financial results. From time to
time, we are subject to litigation and other legal claims incidental to our business.
Please see Note 7 to the Financial Statements included in this Quarterly Report for a
description of litigation in Denmark pending against our Swiss subsidiary MIPS AG. It is
possible that we could suffer an unfavorable outcome in the case pending against MIPS AG
or that we may suffer unfavorable outcomes from claims that are currently pending or that
may arise in the future. Any such unfavorable outcome could materially adversely affect
our financial condition or results of operations.

Our
intellectual property may be misappropriated and we may be unable to obtain or enforce
intellectual property rights. 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. As part of our business strategy, we license our technology in multiple
geographies including in countries whose laws do not provide as much protection for our
intellectual property as the laws of the United States and where we may not be able to
enforce our rights. 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 also cannot assure you that any of our
patent applications to protect our intellectual property will be approved. In addition,
effective trade secret protection may be unavailable or limited in certain countries. If
we are unable to protect or enforce our intellectual property rights, our technology may
be used without the payment of license fees and royalties, which could weaken our
competitive position, reduce our operating results and increase the likelihood of costly
litigation.

22

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We
may be subject to claims of infringement. We cannot assure you 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. As we grow our business and expand
into new markets that other companies are developing in, the risk that our technology may
infringe upon the intellectual property rights of others increases. 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 on acceptable terms to us 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
have recorded long-lived assets, and our results of operations would be adversely affected
if their value becomes impaired. In both the first and second quarters of fiscal 2003 and
the second quarter of fiscal 2002, 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 expense of $1.7 million
in fiscal 2004 and $696,000 in fiscal 2003 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.

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.

23

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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 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 March 31, 2005, 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

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# PART II  OTHER
INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Please see Note 7 to the financial
statements in Item 1, which note is incorporated herein by this reference.

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. *
| | ---- | -----------------------------------------------------------------------------------------------------

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

| | On
January 27, 2005, a current report on Form 8-K was filed with the SEC under Item 5.02 to
report that Robert R. Herb was appointed to the Board of Directors and that the Board
increased the size of the Board from six to seven directors and appointed Mr. Herb to
fill the vacancy created by such increase. In addition, under Item 1.01, it was reported
that Mr. Herb entered into the Companys standard Indemnity Agreement. A copy of the
Form of Indemnity Agreement and the press release announcing Mr. Herbs appointment
to the Board were filed as exhibits under Item 9.01.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | *As
contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly
Report on Form 10-Q and are not deemed filed with the Securities and Exchange commission
and are not incorporated by reference in any filing of MIPS Technologies, Inc. under the
Securities Act of 1933 or the Securities Act of 1934, whether made before or after the
date hereof and irrespective of any general incorporation language in any such filings.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEMS 2, 3, 4, AND 5 ARE NOT
APPLICABLE AND HAVE BEEN OMITTED.

25

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |                                             
| | --------------------------------------------
| | 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:  May 9, 2005

26

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