UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549







FORM 10-Q




(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF
1934.




FOR THE QUARTERLY PERIOD
ENDED September 30, 2008




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.
      Employer
              Identification
      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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definition of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer ̈
            Accelerated
      filer  x
            Non-accelerated
      filer   ̈
            Smaller
      reporting company   ̈




Indicate
by check mark whether the registrant is a Shell Company (as defined in Rule12b-2
of the Exchange Act).    Yes   ̈    No
  x




As
of October 31, 2008, the number of outstanding shares of the registrant’s
common stock, $0.001 par value, was 44,677,283.














PART I – FINANCIAL
      INFORMATIONItem 1.
              Financial Statements
      (Unaudited):Condensed
      Consolidated Balance SheetsCondensed Consolidated Statements of
      OperationsCondensed
      Consolidated Statements of Cash FlowsNotes to Condensed Consolidated Financial
      StatementsItem 2.
              Management’s
      Discussion and Analysis of Results of Operations and Financial
      ConditionItem 3.
              Quantitative and
      Qualitative Disclosures About Market RiskItem 4.
              Controls and
      ProceduresPART II – OTHER
      INFORMATIONItem 1.
              Legal
      ProceedingsItem 1A
              Risk
      FactorsItem 6.
              ExhibitsSignatures
  Table of Contents


PART I – FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  MIPS
TECHNOLOGIES, INC.
  CONDENSED CONSOLIDATED BALANCE SHEETS
 (In
thousands)
  September 30,
                2008
              
              
              June 30,
                2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              16,174
              
              
              $
              13,938Accounts
      receivable, net
              
              
              10,215
              
              
              
              9,866Unbilled
      receivables
              
              
              3,736
              
              
              
              4,596Short
      term restricted cash
              
              
              19,723
              
              
              
              22,649Prepaid
      expenses and other current assets
              
              
              2,399
              
              
              
              2,154Total
      current assets
              
              
              52,247
              
              
              
              53,203Equipment,
      furniture and property, net
              
              
              14,339
              
              
              
              16,307Intangible
      assets, net
              
              
              14,985
              
              
              
              18,324Goodwill
              
              
              31,311
              
              
              
              40,624Long
      term restricted cash
              
              
              —
              
              
              
              7,385Other
      assets
              
              
              16,165
              
              
              
              16,901$
              129,047
              
              
              $
              152,744LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              3,529
              
              
              $
              3,441Accrued
      liabilities
              
              
              45,883
              
              
              
              51,963Short-term
      debt
              
              
              7,377
              
              
              
              18,641Deferred
      revenue
              
              
              5,079
              
              
              
              4,283Total
      current liabilities
              
              
              61,868
              
              
              
              78,328Long-term
      liabilities:Long-term
      debt
              
              
              10,695
              
              
              
              —Other
      long term liabilities
              
              
              20,465
              
              
              
              29,496Total
      long term liabilities
              
              
              31,160
              
              
              
              29,496Stockholders’
      equity:Common
      stock
              
              
              44
              
              
              
              44Preferred
      stock
              
              
              —
              
              
              
              —Additional
      paid-in capital
              
              
              253,562
              
              
              
              252,263Accumulated
      other comprehensive income
              
              
              11,991
              
              
              
              15,224Accumulated
      deficit
              
              
              (229,578
              )
              
              
              (222,611
              )Total
      stockholders’ equity
              
              
              36,019
              
              
              
              44,920$
              129,047
              
              
              $
              152,744
  See
accompanying notes.
  
 
 1
 Table of Contents
 
 MIPS
TECHNOLOGIES, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 (In
thousands, except per share data)
   Three
      Months Ended
                September 30,2008
              
              
              2007Revenue:Royalties
              
              $
              11,832
              
              
              $
              10,519Contract Revenue
              
              
              14,385
              
              
              
              11,633Total revenue
              
              
              26,217
              
              
              
              22,152Cost
      of Contract Revenue
              
              
              7,644
              
              
              
              3,324Gross
      Margin
              
              
              18,573
              
              
              
              18,828Costs
      and expenses:Research and
      development
              
              
              7,347
              
              
              
              9,013Sales and
    marketing
              
              
              5,045
              
              
              
              5,586General and
      administrative
              
              
              6,957
              
              
              
              7,009Acquired
      in-process research and development
              
              
              —
              
              
              
              5,440Restructuring
              
              
              4,931
              
              
              
              —Total operating
      expenses
              
              
              24,280
              
              
              
              27,048Operating
      loss
              
              
              (5,707
              )
              
              
              (8,220
              )Other
      income, net
              
              
              (1,438
              )
              
              
              495Loss
      before income taxes
              
              
              (7,145
              )
              
              
              (7,725
              )Benefit
      from income taxes
              
              
              (178
              )
              
              
              (694
              )Net
      loss
              
              $
              (6,967
              )
              
              $
              (7,031
              )Net
      loss per share, basic and diluted
              
              $
              (0.16
              )
              
              $
              (0.16
              )Common
      shares outstanding, basic and diluted
              
              
              44,334
              
              
              
              43,766
 
 See
accompanying notes.
   2
 Table of Contents
  MIPS
TECHNOLOGIES, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 (In
thousands)
  Three
      Months Ended
                September 30,2008
              
              
              2007Operating
      activities:Net
      loss
              
              $
              (6,967
              )
              
              $
              (7,031
              )Adjustments to
      reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
              
              
              1,066
              
              
              
              828Amortization of
      intangible assets
              
              
              1,542
              
              
              
              1,265Stock-based
      compensation
              
              
              1,161
              
              
              
              2,390Acquired
      in-process research and development
              
              
              —
              
              
              
              5,440Other
      non-cash charges
              
              
              1,415
              
              
              
              —Changes
      in operating assets and liabilities:Accounts
      receivable, net
              
              
              (432
              )
              
              
              (777
              )Prepaid
      expenses and other current assets
              
              
              (409
              )
              
              
              503Other
      assets
              
              
              560
              
              
              
              2,397
              )Accounts
      payable
              
              
              343
              
              
              
              413
              )Accrued
      liabilities
              
              
              4,817
              
              
              
              (6,882
              )Deferred
      revenue
              
              
              1,211
              
              
              
              83Long-term
      liabilities
              
              
              (1,120
              )
              
              
              414Net
      cash provided by (used in) operating activities
              
              
              3,174
              
              
              
              (957
              )Investing
      activities:Proceeds from
      sale of marketable investments
              
              
              —
              
              
              
              25,940Capital
      expenditures
              
              
              (448
              )
              
              
              (432
              )Acquisition of
      Chipidea, net of cash acquired
              
              
              —
              
              
              
              (120,547
              )Restricted
      cash
              
              
              —
              
              
              
              (27,173
              )Net
      cash used in investing activities
              
              
              (448
              )
              
              
              (122,212
              )Financing
      activities:Net
      proceeds from issuance of common stock
              
              
              138
              
              
              
              1,857Proceeds from
      debt
              
              
              16,236
              
              
              
              20,693Repayments of
      debt
              
              
              (16,625
              )
              
              
              (860
              )Repayments of
      capital lease obligations
              
              
              (108
              )
              
              
              (54
              )Net
      cash provided by (used in) financing activities
              
              
              (359
              )
              
              
              21,636Effect
      of exchange rate on cash
              
              
              (144
              )
              
              
              80Net
      increase (decrease) in cash and cash equivalents
              
              
              2,236
              
              
              
              (101,453
              )Cash
      and cash equivalents, beginning of period
              
              
              13,938
              
              
              
              119,039Cash
      and cash equivalents, end of period
              
              $
              16,174
              
              
              $
              17,586Supplemental
      disclosure of cash transaction:Payment
      of restricted cash by escrow agent to former shareholders of
      Chipidea
              
              $
              9,175
              
              
              $
              —
 
 See
accompanying notes.
   
 3
 Table of Contents
 
  MIPS
TECHNOLOGIES, INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS—UNAUDITED
  Note
1.  Description of Business and Basis of Presentation.
  MIPS Technologies, Inc. is a leading
global supplier of semiconductor design intellectual property (IP) and analog
IP.We
believe MIPS Technologies is the only company that provides a combined
portfolio of processors, analog IP and software tools for the system on chip, or
SoC market.We operate
with two business groups, Processor Business Group (PBG) and Analog Business
Group (ABG). Our technology is broadly used in markets such as mobile consumer
electronics, digital entertainment, wired and wireless communications and
networking, office automation, security, microcontrollers, and automotive. We
offer our customers high-performance, easy-to-use functionality at a fraction of
the cost and time to market that internal development would require. Our
PBG customers pay us license fees for architectural and product rights, as well
as royalties based on processor unit shipments.
  The addition of Chipidea in August
2007, now operating as the ABG of MIPS Technologies, has allowed us to grow the
base of products we offer to a larger set of customers. Analog and mixed signal
IP are used in most SoCs. These are the same integrated circuits that usually
require a microprocessor core, permitting us to sell both kinds of products to
the same customers for the same applications in many circumstances. Analog and
mixed signal IP are difficult to develop, and the number of well-trained
engineers in this field is much smaller than for digital circuitry. With the
acquisition of Chipidea, we have gained a particularly strong team of such
designers for the development and sale of commercial analog
IP.
  Basis of
Presentation.
 
 The
condensed consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission (SEC)
applicable to interim financial information. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted in these interim
statements as allowed by such SEC rules and regulations. The balance sheet at
June 30, 2008 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, 2008, included in our 2008 Annual Report on Form
10-K.
 
 The
unaudited results of operations for the interim periods shown in these financial
statements are not necessarily indicative of operating results for the entire
fiscal year. In our opinion, the condensed consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for each interim period shown.
  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.
  Accounts
Receivable.  Accounts receivable includes amounts billed and
currently due from customers, net of the allowance for doubtful
accounts.   The allowance for doubtful accounts was
$2.5 million and $2.3 at September 30, 2008 and June 30, 2008,
respectively.
 
 Reclassifications.  Certain
balances in our fiscal 2008 consolidated financial statements have been
reclassified to conform to the presentation in fiscal 2009.
  4
 Table of Contents
 
 Note
2.  Computation of Earnings Per Share
 
 Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares that were
outstanding during the period. Diluted earnings per share is computed giving
effect to all dilutive potential common shares that were outstanding for any
periods presented in these financial statements.
  The following table sets forth the
computation of basic and diluted net loss per share (in thousands, except per
share amounts):
  Three
      Months Ended
                September 30,2008
              
              
              2007Numerator:Net
      loss
              
              $
              (6,967
              )
              
              $
              (7,031
              )Denominator:Weighted-average
      shares of common stock outstanding
              
              
              44,334
              
              
              
              43,796Less:
      Weighted-average shares subject to repurchase
              
              
              —
              
              
              
              (30
              )Shares
      used in computing basic net loss per share
              
              
              44,334
              
              
              
              43,766Net
      loss per share, basic and diluted
              
              $
              (0.16
              )
              
              $
              (0.16
              )Shares
      used in computing diluted net loss per share, basic and
      diluted
              
              
              44,334
              
              
              
              43,766Potentially
      dilutive securities excluded from net income per diluted share because
      they are anti-dilutive
              
              
              12,017
              
              
              
              4,189
 
 Note
3.  Comprehensive Loss
 
 Total
comprehensive loss includes net loss and other comprehensive income, which
primarily comprises unrealized gains and losses from foreign currency
adjustments.   Total comprehensive loss for the first quarter of
fiscal 2009 was $10.2 million and total comprehensive loss for the comparable
period in the prior year was $3.0 million.
 
 Note
4.  Acquisition and Goodwill
 
 Chipidea
Acquisition
  On
August 27, 2007, we completed the acquisition of Chipidea Microelectrónica
S.A., a privately held supplier of analog and mixed signal IP based in Lisbon,
Portugal. We acquired all of the outstanding stock of Chipidea
for $147 million in cash, of which $14.7 million is held in escrow to
satisfy indemnification claims that may arise.
 
 In
connection with the acquisition, $12.5 million of consideration was set aside in
an escrow account denominated in Euro (remaining amount approximates $4.4
million at September 30, 2008). Under the terms of the escrow agreement,
payments are due 12 months and 24 months from the acquisition date based on the
shareholders continuing to provide services to us under the terms of the escrow
agreements.  We paid $6.9 million to the former shareholders on the
first anniversary of the acquisition in August 2008.  In addition, we
paid one former shareholder an additional $2.3 million in September 2008 as his
services were terminated from the company in September 2008.  The
remaining balance is due to the other former shareholders of Chipidea on the
second anniversary of the acquisition under the terms of the escrow
agreements.  The consideration payable to former shareholders has been
ratably expensed in the Statement of Operations as payments are contingent upon
continued provision of services to us. The unpaid consideration has been
recorded as deferred purchase price consideration liability. A restricted
cash account has been established for the funding of this payment and is
recorded in short term restricted cash.
   5
 Table of Contents
  Contingent
Consideration.In connection with the acquisition, Chipidea
made certain representations and warranties to us, and Chipidea’s former
shareholders agreed to indemnify us against damages which might arise from a
breach of those representations and warranties. Under the terms of the
acquisition, the former Chipidea shareholders set aside $14.7 million of cash
consideration for payment of possible indemnification claims made by us.
Accordingly, a liability for this contingent cash consideration has been
recorded in accrued liabilities and this amount has been considered in the
purchase price. Under the terms of the acquisition, this amount has been
set aside in an escrow account and is scheduled to be released on the one year
anniversary of the acquisition date. In August 2008, we made certain claims
under the indemnification escrow agreement.  We are uncertain of the
specifics and timing of when these claims with the former shareholders of
Chipidea will be resolved.  A restricted cash account has been
established for the funding of this payment and is recorded in short term
restricted cash.
  The
changes in the carrying amount of goodwill by operating segment for the three
month period ended September 30, 2008, were as follows:
 
 Processor
      Business
                Group
              
              
              Analog
                Business
      Group
              
              
              Total(In
      thousands)Balances
      at June 30, 2008
              
              $
              565
              
              
              $
              40,059
              
              
              $
              40,624Goodwill
      adjustments (1)
              
              
              —
              
              
              
              (5,067
              )
              
              
              (5,067
              )Currency
      translation adjustment
              
              
              —
              
              
              
              (4,246
              )
              
              
              (4,246
              )Balances
      at September 30, 2008
              
              $
              565
              
              
              $
              30,746
              
              
              $
              31,311
  (1)
              Adjustments
      to goodwill primarily represent changes in assumed pre-acquisition income
      tax liabilities accounted for under FIN 48.  To the extent that
      actual amounts differ from the estimated amounts recorded, the differences
      may result in future adjustments to
goodwill.
  Note
5.  Purchased Intangible Assets
  The
balances of acquisition related intangible assets consisted of the following as
of September 30, 2008:
 
 September
      30, 2008Weighted
                Average
                Amortization
                Period
      (in
                months)
              
              Gross
      Carrying Value
              
              Accumulated
      Amortization
              
              Net
      Carrying Value(In
      thousands, except months)Developed
      and core technology
              
              
              70
              
              
              $
              14,796
              
              
              $
              (8,070
              )
              
              $
              6,726Customer
      relationships and backlog
              
              
              56
              
              
              
              13,113
              
              
              
              (5,795
              )
              
              
              7,318Other
              
              
              63
              
              
              
              1,535
              
              
              
              (594
              )
              
              
              941Total
              
              
              65
              
              
              $
              29,444
              
              
              $
              (14,459
              )
              
              $
              14,985
   6
 Table of Contents
 The balances
of acquisition related intangible assets consisted of the following as of
June 30, 2008:
  June 30,
      2008Weighted
                Average
                Amortization
                Period
      (in
                months)
              
              
              Gross
                Carrying
                Value
              
              
              Accumulated
                Amortization
              
              
              Impairment
                Losses
              
              
              Net
                Carrying
                Value(In
      thousands, except months)Developed
      and core technology
              
              
              70
              
              
              $
              28,116
              
              
              $
              (7,997
              )
              
              $
              (12,164
              )
              
              $
              7,955Customer
      relationships and backlog
              
              
              56
              
              
              
              15,286
              
              
              
              (5,351
              )
              
              
              (692
              )
              
              
              9,243Other
              
              
              63
              
              
              
              3,041
              
              
              
              (579
              )
              
              
              (1,336
              )
              
              
              1,126Total
              
              
              65
              
              
              $
              46,443
              
              
              $
              (13,927
              )
              
              $
              (14,192
              )
              
              $
              18,324
  Developed and
core technology are being amortized over their useful lives of 5 to 15
years.  Customer relationships and backlog are being amortized over
their useful lives of 1 to 7 years.  Other intangible assets are being
amortized over their useful lives of 3 to 5 years.
  Estimated
future amortization expense related to acquisition related intangible assets as
of September 30, 2008 is as follows:
  In thousandsFiscal
      YearRemaining
      2009
              
              $
              2,8302010
              
              
              3,7742011
              
              
              3,2902012
              
              
              2,8272013
              
              
              910Thereafter
              
              
              1,354Total
              
              $
              14,985
   7
 Table of Contents
  Note
6.  Short-term Debt
 
 The
components of short-term debt are as follows (in thousands):
  September
      30, 2008
              
              
              June
      30, 2008Credit agreement
              
              $
              3,750
              
              
              $
              16,000Bank
      lines of credit
              
              
              3,481
              
              
              
              2,476Other
              
              
              146
              
              
              
              165$
              7,377
              
              
              $
              18,641
  Revolving
Credit Agreement.On July 3, 2008, we entered
into a loan and security agreement with Silicon Valley Bank
(“SVB”).  The loan and security agreement provides for a $15 million
term loan and a revolving credit facility in an amount up to $10
million.  The borrowing availability under the revolving credit
facility varies according to MIPS’ accounts receivable and recurring royalty
revenues and other terms and conditions described in the loan and security
agreement.  The revolving credit facility will also be available for
the issuance of letters of credit, cash management services and foreign exchange
contracts.  The revolving credit facility will mature on July 2, 2009,
while the term loan will be repaid in 48 equal monthly payments of principal
plus accrued interest.  Loans under the loan and security agreement
are secured by substantially all of MIPS assets, other than intellectual
property.  The amounts borrowed on July 3, 2008, which included the
full amount of the $15 million term loan, together with approximately $1.2
million of borrowings under the revolving credit facility, were used to repay
all outstanding loans under our previously existing revolving credit agreement
with Jefferies Finance LLC.  Borrowings under the term loan facility
bear interest at prime rate plus 0.50% and borrowings under the revolving credit
agreement bear interest at prime rate plus 0.25% as defined in the credit
facility agreement.  As of September 30, 2008, we owed $14.4 million
under the term loan and $1.2 million under the revolving credit
facility.  As of September 30, 2008, we had approximately $8.8 million
available to borrow under the revolving credit facility. The prime rate at
September 30, 2008 was 5.0%.
 
 Bank
Lines of Credit.
  We
have bank line of credit agreements with several Portuguese banks with a
total aggregate available credit of approximately $2.3 million as of
September 30, 2008. The interest rates on these agreements range from
6.8% to 7.7% and the agreements have expiration dates ranging from October 12,
2008 to December 25, 2008, with automatic renewal provisions for additional
90-day period or 6-month periods. As of September 30, 2008, we have
outstanding borrowings of $2.3 million and no credit line available under these
agreements.
  Other.
 
 As of
September 30, 2008, we have a non-interest bearing loan of $0.2 million with a
Portuguese governmental agency of which $0.1 million is included in short term
debt.
  As of
September 30, 2008, we have entered into letters of credit for
approximately $2.4 million with various financial institutions in Portugal,
Belgium, France and Norway in association with certain building leases and
government grants.
 
 Note
7.  Restructuring
 
 We record
restructuring activities in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146) and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144).
   8
 Table of Contents
 
 In August
2008 we announced a plan to reduce the Company’s operating costs by a reduction
in employee headcounts in the Company’s facilities in United States, Israel,
Portugal and closing of the Belgium center.  In total, 58 employees
were given notice of termination during the first quarter of fiscal 2008,
resulting in approximately $4.7 million of severance and benefits costs recorded
as restructuring expense.   As of September 30, 2008, of the
employees that were notified of their terminations, 42 of the employees accepted
their terminations and 16 employees were notified of their termination and were
in the process of being terminated.  In addition, asset disposal and
other closure costs of approximately $82,000 and $150,000 were recorded as
restructuring expense in the first quarter of fiscal 2009. Of the total $4.9
million of costs incurred in connection with this restructuring, $4.6 million
related to our ABG and $0.3 million related to our PBG.  We expect to
incur additional costs of $1.1 million to $1.6 million in our ABG as we complete
this restructuring.  The reductions in personnel and operating
expenses are expected to be fully achieved prior to December 31, 2008, and we
expect to complete all actions under the restructuring plan by June 30,
2009.
 
 Activity
under our restructuring plans for the three months ended September 30, 2008 is
summarized as follows:
  Severance
      and related benefits
                
                
                Other exit-
      related costs
                
                
                Total(in
      thousands)Balance
      at June 30, 2008
                
                $
                —
                
                
                $
                236
                
                
                $
                236Current
      changes
                
                
                4,699
                
                
                
                232
                
                
                
                4,931Cash
      payments
                
                
                (3,348
                )
                
                
                (170
                )
                
                
                (3,518
                )Amount
      included in accounts payable
                
                
                —
                
                
                
                (5
                )
                
                
                (5
                )Impact
      of foreign currency
                
                
                (24
                )
                
                
                (21
                )
                
                
                (45
                )Non-cash
      charges
                
                
                —
                
                
                
                (84
                )
                
                
                (84
                )Balance
      at September 30, 2008
                
                $
                1,327
                
                
                $
                188
                
                
                $
                1,515
  Note
8.  Other Income (Expense), Net
  The
components of other income (expense), net are as follows (in
thousands):
  Three
      months ended
                September
      30,2008
              
              
              2007Interest
      income
              
              $
              47
              
              
              $
              1,049Interest
      expense
              
              
              (483
              )
              
              
              (186
              )Other
              
              
              (1,002
              )
              
              
              (368
              )Total
      interest and other income, net
              
              $
              (1,438)
              
              
              $
              495
  Note
9.  Equipment, Furniture and Property
 
 The
components of equipment, furniture and property are as follows (in
thousands):
  September
      30, 2008
              
              
              June
      30, 2008Equipment
              
              $
              16,032
              
              
              $
              16,363Land
      and buildings
              
              
              7,743
              
              
              
              8,661Furniture
      and fixtures
              
              
              3,763
              
              
              
              3,913Leasehold
      improvements
              
              
              810
              
              
              
              81228,348
              
              
              
              29,749Accumulated
      depreciation and amortization
              
              
              (14,009
              )
              
              
              (13,442
              )Equipment,
      furniture and property, net
              
              $
              14,339
              
              
              $
              16,307
   9
 Table of Contents
  Note
10.   Other Long-Term Assets
 
 The
components of other long-term assets are as follows (in thousands):
  September
      30, 2008
              
              
              June
      30, 2008Long-term
      deferred tax asset
              
              $
              1,412
              
              
              $
              -Investments
      in other companies
              
              
              2,150
              
              
              
              2,157Engineering
      design software licenses
              
              
              9,643
              
              
              
              11,458Investments
      related to employee compensation plan
              
              
              1,848
              
              
              
              2,070Other
      long-term assets
              
              
              1,112
              
              
              
              1,216$
              16,165
              
              
              $
              16,901
  Note
11.  Accrued and Other Long-Term Liabilities
 
 The
components of accrued liabilities are as follows (in thousands):
  September
      30, 2008
              
              
              June
      30, 2008Accrued
      compensation and employee-related expenses
              
              $
              7,285
              
              
              $
              6,457Income
      taxes payable
              
              
              653
              
              
              
              (48)Payable
      to Chipidea shareholders
              
              
              15,314
              
              
              
              15,212Capital
      lease obligations
              
              
              7,167
              
              
              
              8,044Deferred
      purchase price consideration
              
              
              387
              
              
              
              6,123Liabilities
      related to engineering design software licenses
              
              
              5,103
              
              
              
              5,212Restructuring
      related liabilities
              
              
              1,515
              
              
              
              -Other
      accrued liabilities
              
              
              8,459
              
              
              
              10,963$
              45,883
              
              
              $
              51,963
  Income
taxes payable has a negative balance due to the benefit recorded for the first
fiscal quarter of 2008.
  The
components of other long-term liabilities are as follows (in
thousands):
  September
      30, 2008
              
              
              June
      30, 2008Deferred
      compensation
              
              $
              2,044
              
              
              $
              2.530Long-term
      deferred tax liability
              
              
              7,880
              
              
              
              7,548Long-term
      income tax liability
              
              
              3,949
              
              
              
              11,758Long-term
      accounts payable
              
              
              5,044
              
              
              
              6,052Other
      long-term liabilities
              
              
              1,548
              
              
              
              1,608$
              20,465
              
              
              $
              29,496
  Note
12.  Commitments and Contingencies
 
 Purchase
Commitments with Suppliers
 
 We have
outstanding purchase orders for ongoing operations of approximately $7.8 million
as of September 30, 2008. Payments of these obligations are subject to the
provision of services or products.
   10
 Table of Contents
  Litigation
  A derivative action entitledIn re MIPS
Technologies, Inc. Derivative Litigation, Case No. C-06-06699-RMW, was
filed on October 27, 2006, in the United States District Court,
Northern District of California, against certain current and former MIPS
officers and directors and MIPS as a nominal defendant. The complaint in
the action alleges that the individual defendants breached their
fiduciary duties and violated California and federal securities laws as a result
of, among other things, purported backdating of stock option grants,
insider trading and the dissemination of false financial statements.
Plaintiff seeks to recover purportedly on behalf of MIPS, unspecified
monetary damages, corporate governance changes, equitable and injunctive relief,
and fees and costs. A motion to dismiss the consolidated complaint was
granted on January 11, 2008, with leave for plaintiff to amend. Plaintiff
filed an amended complaint and MIPS filed a second motion to dismiss which was
granted without leave to amend on August 13, 2008.  The time
within which plaintiff had the right to appeal has elapsed.  It is not
clear what, if any, action plaintiff will take in connection with this
matter.
 
 From time
to time, we receive communications from third parties asserting patent or other
rights allegedly covering our products and technologies. Based upon our
evaluation, we may take no action or we may seek to obtain a license, redesign
an accused product or technology, initiate a formal proceeding with the
appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or initiate
litigation. There can be no assurance in any given case that a license will be
available on terms we consider reasonable or that litigation can be avoided if
we desire to do so. If litigation does ensue, the adverse third party will
likely seek damages (potentially including treble damages) and may seek an
injunction against the sale of our products that incorporate allegedly infringed
intellectual property or against the operation of our business as presently
conducted, which could result in our having to stop the sale of some of our
products or to increase the costs of selling some of our products. Such lawsuits
could also damage our reputation. The award of damages, including material
royalty payments, or the entry of an injunction against the sale of some or all
of our products, could have a material adverse affect on us. Even if we were to
initiate litigation, such action could be extremely expensive and time-consuming
and could have a material adverse effect on us. We cannot assure you that
litigation related to our intellectual property rights or the intellectual
property rights of others can always be avoided or successfully
concluded.
  Even if
we were to prevail, any litigation could be costly and time-consuming and would
divert the attention of our management and key personnel from our business
operations, which could have a material adverse effect on us.
 
 Note 13. 
Stock-Based Compensation
 
 The following
table shows total stock-based employee compensation expense included in the
condensed consolidated statement of operations for the three-month periods ended
September 30, 2008 and 2007 (in thousands):
  Three
      Months Ended
                September 30,2008
              
              
              2007Costs
      and expenses:Research
      and development
              
              $
              202
              
              
              $
              833Sales
      and marketing
              
              
              433
              
              
              
              662General
      and administrative
              
              
              526
              
              
              
              895Total
      stock-based compensation expense
              
              $
              1,161
              
              
              $
              2,390
  There was
no capitalized stock-based employee compensation cost as of September 30, 2008
or 2007.  There were no material recognized tax benefits during the
first quarter of either fiscal 2009 or fiscal 2008.
 
 Note
14.  Income Taxes
  We
recorded an income tax benefit of $0.2 million for the three-month period ended
September 30, 2008 and an income tax benefit of $0.7 million for the comparable
period in fiscal 2008. For the Processor Business Group, we continued to
recognize a valuation allowance against the U.S. deferred tax assets as we
believe that it is more likely than not that the deferred tax assets will not be
recognized.
  Our
estimated annual income tax for fiscal 2009 primarily consists of US deferred
tax from goodwill amortization, foreign tax, and withholding tax, offset by
releases of unrecognized tax benefits that are no longer applicable. Our
estimated annual income tax for fiscal 2008 primarily consists of US federal,
state, foreign income taxes, withholding taxes, offset in part by certain
foreign tax credits and general business tax credits. The tax benefit recognized
for the quarter ended September 30, 2008 is lower than that of 2007 because we
are not recognizing the tax benefits from US income until it is more likely than
not that such benefits can be utilized.
   11
 Table of Contents
 
 The total
amount of gross unrecognized tax benefits as of September 30, 2008 and June 30,
2008 was approximately $7.8 and $13.8 million, respectively. The decrease was
primarily due to the release of unrecognized tax benefits related to
international tax exposures that are no longer applicable. Approximately $5.1
million of acquisition related unrecognized tax benefits were released to
goodwill and approximately $1.3 million of unrecognized tax benefits were
released to the income tax provision as a benefit for the quarter ended
September 30, 2008.
  We accrue
interest and penalties related to uncertain tax positions as a component of the
provision for income taxes. Accrued interest and penalties relating
to income tax on the unrecognized tax benefits as of September 30, 2008 and
June 30, 2008 was approximately, $0.8 million and $1.5 million, respectively,
with approximately $43,000 being included as a component of provision for income
taxes for the quarter ended September 30, 2008. Also, the total amount of
unrecognized tax benefits that, if recognized, would affect the effective tax
rate was $1.4 million as of September 30, 2008 and $3.0 million as of June 30,
2008.
 
 Although
we file U.S. federal, U.S. state, and tax returns in several overseas tax
jurisdictions, our major tax jurisdictions are the United States and Portugal.
Our fiscal 2005 and subsequent tax years remain subject to examination by the
IRS for U.S. federal tax purposes, and our calendar 2004 and subsequent tax
years remain subject to examination by the appropriate governmental agencies for
Portuguese tax purposes.  The Company has determined that it is
reasonably possible that the total amount of uncertain tax benefits relating to
certain foreign tax liabilities will change in the next 12 months due to various
statute of limitations expiring. The amount of unrecognized tax benefits that
could change is approximately $0.2 million.
  Note 15. Operating Segments and Geographic
information
  We evaluate our reportable segments in
accordance with SFAS No. 131,Disclosures about
Segments of an Enterprise and Related Information(SFAS 131). Our Chief Executive
Officer has been identified as our Chief Operating Decision Maker (CODM). The
CODM allocates resources to the segments based on their business prospects,
competitive factors, net revenue and operating results.
  Prior to fiscal year 2008, we operated
in one reportable business group. In the first quarter of fiscal 2008, following
the acquisition of Chipidea, we organized into two business groups, the
Processor Business Group (PBG) and the Analog Business Group (ABG). These
segments were determined based upon our internal organization and management
structure and are the primary way in which the CODM is provided with financial
information. The CODM evaluates segment performance based on net revenues and
operating income, excluding certain items. These excluded costs are certain
corporate expenses such as impairment costs related to intangible assets,
general and administrative expenses, selling costs, IT costs, certain corporate
marketing costs, the amortization of purchased intangible assets associated with
the Chipidea acquisition, employee share-based compensation expense, certain
acquisition costs related to the purchase of Chipidea and restructuring costs.
Our costs and operating results are analyzed in the two reportable business
groups. The results of each segment have been prepared using consistent
accounting policies with those of MIPS as a whole. Segment information is
presented based upon our management’s organizational structure as of
September 30, 2008. Future changes to the internal financial structure may
result in changes to the reportable segments disclosed.
  The major segments we serve are as
follows:
  
  The PBG provides
industry-standard processor architectures and cores for digital consumer and
business applications. This group designs and licenses high performance 32- and
64-bit architectures and cores, which offer smaller dimensions and greater
energy efficiency in embedded processors. Markets served by the PBG segment
include digital set-top digital televisions, DVD recordable devices, broadband
access devices, digital cameras, laser printers, portable media players,
microcontrollers and network routers.
  12
 Table of Contents
  
  The ABG includes the
Chipidea operation and provides analog and mixed-signal IP that produces
cost-efficient System-on-Chip (SoC) applications and turnkey solutions. The ABG
IP portfolio covers all fundamentalfunctions in the analog and
mixed-signal electronic space, including data conversion, clock management,
power management, radio connectivity, physical connectivity, and voice audio and
video processing. The market segments served by the ABG segment are wireless
communications, power line communications, data communications, video, audio and
voice signal processing, xDSL modems, set-top boxes, multimedia and digital
consumer electronics.
  The following is a
summary of net revenue, gross margin and operating income (loss) by segment for
the quarters ended September 30, 2008 and 2007. Prior period segment information
has been reclassified to conform to the current period presentation (in
thousands):
  Quarters Ended September  30,2008
              
              
              2007Processor
      Business GroupNet
      revenue
              
              $
              19,580
              
              
              $
              19,931Gross
      margin
              
              
              19,414
              
              
              
              19,628Operating
      income
              
              
              12,765
              
              
              
              11,002Analog
      Business GroupNet
      revenue
              
              
              6,637
              
              
              
              2,221Gross
      margin
              
              
              603
              
              
              
              35Operating
      loss
              
              
              (634
              )
              
              
              (646
              )All
      OtherNet
      revenue
              
              
              —
              
              
              
              —Gross
      margin
              
              
              (1,444
              )
              
              
              (835
              )Operating
      loss
              
              
              (17,838
              )
              
              
              (18,576
              )TotalNet
      revenue
              
              
              26,217
              
              
              
              22,152Gross
      margin
              
              
              18,573
              
              
              
              18,828Operating
      loss
              
              
              (5,707
              )
              
              
              (8,220
              )Interest
      income
              
              
              47
              
              
              
              1,049Interest
      expense
              
              
              (483
              )
              
              
              (186
              )Other expense,
      net
              
              
              (1,002
              )
              
              
              (368
              )Loss
      before income taxes
              
              
              (7,145
              )
              
              
              (7,725
              )Provision
      for (benefit from) income taxes
              
              
              (178
              )
              
              
              (694
              )Net
      loss
              
              
              (6,967
              )
              
              
              (7,031
              )
  Management does not allocate long-lived
assets to the corporate function when evaluating the performance of the business
groups.
   13
 Table of Contents
  Note
16.  Recent Accounting Pronouncements
  In April
2008, the FASB finalized Staff Position (“FSP”) No. 142-3, Determination of the Useful Life of
Intangible Assets(FSP 142-3). The position amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB SFAS 142,
Goodwill and Other Intangible
Assets.  The position applies to intangible assets that are acquired
individually or with a group of other assets and both intangible assets acquired
in business combinations and asset acquisitions. FSP 142-3 is effective for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. We are currently evaluating the impact of the pending
adoption of FSP 142-3 on our consolidated financial
statements.
 
 In December 2007, the FASB issued SFAS
No. 141(R),Business
Combinations(SFAS 141R).
SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting (which SFAS 141 called thepurchase
method) be used for all
business combinations and for an acquirer to be identified for each business
combination. SFAS 141R also establishes principles and requirements for how the
acquirer: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree; (b) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and
(c) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We are currently
evaluating the impact that SFAS 141R will have on our financial
statements.
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS
157), which defines fair value, establishes a framework for measuring fair value
and expands disclosure, about fair value measurements. SFAS 157 is
effective for fiscal year ending June 30, 2009.   Adoption of
this standard did not have material impact to us.
   14
 Table of Contents
 ITEM 2. 
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
  You
should read the following discussion and analysis together with our unaudited
condensed consolidated financial statements and the notes to those statements
included elsewhere in this report. This discussion may contain forward-looking
statements that involve risks and uncertainties. Forward-looking statements
within this Quarterly Report on Form 10-Q include our expectations for future
levels of 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 “Risk Factors”, and other risks affecting our
business. We undertake no obligation to update any forward-looking statements
included in this discussion.
 
 Overview
  Revenue
for the quarter ended September 30, 2008 was $26.2 million compared to revenue
of $22.2 million for the quarter ended September 30, 2007. The revenue increase
was primarily due to the impact of having a full quarter of ABG revenue in our
September 2008 quarter as compared to only 5 weeks of ABG revenue in the quarter
ended September 30, 2007.
  Revenue
from royalties was $11.8 million for the quarter ended September 30, 2008, an
increase of $1.3 million or 12 percent from the $10.5 million reported in the
first quarter a year ago. The increase in royalty revenue was driven by higher
licensee unit volumes compared with the first quarter of fiscal 2007. End user
licensee units grew 22% to 112 million units.
 
 Contract and license revenue was $14.4
million for the quarter ended September 30, 2008, an increase of 24% from the
$11.6 million reported in the same quarter a year ago.  License
revenue from the Processor business was $8.0 million with 8 new license
agreements signed during the quarter. Contract and license revenue from the
Analog business was $6.4 million generated from existing contracts along with a
portion of the 16 new contracts signed during the quarter.  The
increase in contract and license revenue was due to ABG contributing to revenue
for the full quarter in September 2008 as compared to only 5 weeks in September
2008. We believe Analog revenues were negatively affected during the September
2008 quarter by the dramatic change in business conditions along with the
disruptions associated with our restructuring efforts announced during the
quarter.
 
 Our
operating expense for the first quarter of fiscal 2009 was $24.3 million
including a restructuring charge of $4.9 million as compared to $27.0 million
for the first quarter of fiscal 2008, which included a $5.4 million acquired
in-process research and development (IPR&D) charge.
  The total
of our research and development, sales and marketing and general and
administrative costs  for the quarter ended September 30, 2008 was
$2.3 million lower than the comparable period of 2007 and was also $3.3 million
lower than our quarterly operating expenses for the quarter
ended  June 30, 2008 as a result of our cost reduction
programs.  The reduction in operating expenses reflects the impact of
our cost reduction programs implemented as per our August 2008 corporate
restructuring plan in an effort to better integrate the ABG and reduce our
overall cost structure.  Our employee count reduced by approximately
56 during the September 2008 quarter, which reflected our planned and completed
domestic reductions along with our international reductions in progress, for
which the vast majority of the termination notifications were given by September
30, 2008.  We expect to fully achieve our goal of reducing quarterly
operating costs by approximately $5.0 million by the end of our second quarter
of fiscal 2009.  As a result of the restructuring, we expect to generate
additional cash flow in the coming quarters and improve our overall liquidity
position.
 
 Our initial estimated range of restructuring expense relating to the August 2008
corporate restructuring plan as reported in our 2008 Annual Report on Form 10-K
was $6.5 million to $7.5 million.  We now expect the restructuring expense
to be in the range of $6.0 million to $6.5 million.  The reduction in
our expected costs is primarily due to the weakening of the euro relative
to the dollar and to the related impact on severance and contract
termination costs in our European operations.  We
are still anticipating that the corporate restructuring will result in
reduced quarterly spending of approximately $5.0 million.
   15
 Table of Contents
 
 In the
quarter ended September 30, 2008, our cash and short term investments increased
by $2.2 million to $16.2 million even though we expended approximately $1.3
million to fund restructuring costs during the quarter.  In addition,
in July 2008 we paid off our Jefferies debt facility of $16.0 million in
connection with borrowing approximately $16.2 million from our Silicon Valley
Bank term and revolving credit facility.  Our debt balance as of
September 30, 2008 was approximately $18.8 million, which included $2.6 million
in debt associated with the ABG.
 
 Our Operating
Segments
  We operate with two business
groups, the Processor Business Group (PBG) and the Analog Business Group (ABG).
These segments were determined based upon our internal organization and
management structure and are the primary way in which the CODM is provided with
financial information.
  The major segments we serve are as
follows:
  
  The PBG provides industry-standard
processor architectures and cores for digital consumer and business
applications. This group designs and licenses high performance 32- and 64-bit
architectures and cores, which offer smaller dimensions and greater energy
efficiency in embedded processors. Markets served by the PBG segment include
digital set-top boxes, digital televisions, DVD recordable devices, broadband
access devices, digital cameras, laser printers, portable media players,
microcontrollers and network routers.
  
  The ABG includes the
Chipidea operation and provides analog and mixed-signal IP that produces
cost-efficient System-on-Chip (SoC) applications and turnkey solutions. The ABG
IP portfolio covers all fundamental functions in the analog and mixed-signal
electronic space, including data conversion, clock management, power management,
radio connectivity, physical connectivity, and voice audio and video processing.
Market segments served by the ABG segment are wireless communications, power
line communications, data communications, video, audio and voice signal
processing, xDSL modems, set-top boxes, multimedia and digital consumer
electronics.
  Our
reportable segments are the same as our operating segments.  The
following table provides a summary of our net revenue and operating loss by
segment for the quarters ended September 30, 2008 and 2007:
 
  Quarter
      EndedSeptember
      30,
                2008
              
              
              September
      30,
                2007(In
      thousands)Net
      revenue:PBG
              
              $
              19,580
              
              
              $
              19,931ABG
              
              
              6,637
              
              
              
              2,221All
      Other
              
              
              —
              
              
              
              —Total
      Net Revenue
              
              
              26,217
              
              
              
              22,152Gross
      Margin:PBG
              
              
              19,414
              
              
              
              19,628ABG
              
              
              603
              
              
              
              35All
      Other
              
              
              (1,444
              )
              
              
              (835
              )Total
      Gross Margin
              
              
              18,573
              
              
              
              18,828Operating
      income (loss):PBG
              
              
              12,765
              
              
              
              11,002ABG
              
              
              (634
              )
              
              
              (646
              )All
      Other
              
              
              (17,838
              )
              
              
              (18,576
              )Total
      Operating Loss
              
              $
              (5,707
              )
              
              $
              (8,220
              )
  16
 Table of Contents
  PBG
 
 PBG net
revenue of $19.6 million in the first quarter of fiscal 2009 decreased by 2
percent compared to net revenue of $19.9 million in the first quarter of fiscal
2008. Net revenue decreased primarily as a result of a $1.5 million decrease in
license and contract revenue partially offset by an increase of royalty revenue
of $1.1 million.
 
 PBG gross
margin of $19.4 million in the first quarter of fiscal 2009 decreased by 1
percent compared to gross margin of $19.6 million in the first quarter of fiscal
2008. Gross margin decreased primarily as a result of the decrease in PBG
revenue for the quarter.
 
 PBG
operating income of $12.8 million in the first quarter of fiscal 2009 increased
by 16 percent compared to operating income of $11.0 million in the first quarter
of fiscal 2008. Operating income increased primarily as a result of the
quarterly decrease in PBG operating expenses for the quarter ended September 30,
2008 as compared to the same period of the prior year.
  ABG
 
 ABG net
revenue of $6.6 million in the first quarter of fiscal 2009 increased 199
percent compared to net revenue of $2.2 million in the first quarter of fiscal
2008.  The revenue increase was primarily due to the impact of having
a full quarter of ABG revenue in our September 2008 quarter as compared to only
5 weeks of ABG revenue in the quarter ended September 30, 2007.
 
 ABG gross
margin of $0.6 million in the first quarter of fiscal 2009 increased from a
gross margin of $35,000 in the first quarter of fiscal 2008. Gross margin
increased primarily due to the impact of having a full quarter of ABG revenue
and cost of sales in our September 2008 quarter as compared to only 5 weeks of
ABG revenue and cost of sales in the quarter ended September 30,
2007.
 
 ABG
operating loss was relatively flat at $0.6 million for both the first quarter of
fiscal 2009 as well as the first quarter of fiscal 2008.
 
 All
Other Category
 
 All Other
negative gross margin of $1.4 million in the first quarter of fiscal 2009
compared to negative gross margin of $0.8 million in the first quarter of fiscal
2008. The increase in negative gross margin was primarily due to the impact of
having a full quarter of intangible asset amortization in the first quarter of
fiscal 2009 as compared to only 5 weeks of acquired intangible asset
amortization in the first quarter of fiscal 2008.
 
 All Other
operating loss of $17.8 million in the first quarter of fiscal 2009 improved by
4 percent as compared to operating loss of $18.6 million in the first quarter of
fiscal 2008.  The first quarter loss of 2009 was less than the loss in
same period of 2008 primarily due to a $0.9 million decrease in All Other stock
compensation expense.
 
  17
 Table of Contents
  Results
of Operations
  Revenue.Total revenue
consists of royalties and contract revenue. Royalties are based upon sales by
licensees of products incorporating our technology. Contract revenue consists of
technology license fees generated from new and existing license agreements for
developed technology and engineering service fees generated from contracts for
technology under development or configuration of existing IP. 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
during a specified period, and whether the license granted covers a particular
design or a broader architecture.
  Our
revenue in the three-month periods ended September 30, 2008 and
September 30, 2007 was as follows (in thousands):
  Three
      Months Ended
                September 30,2008
              
              
              2007
              
              
              Change
                in
                PercentRevenueRoyalties
              
              $
              11,832
              
              
              $
              10,519
              
              
              
              12
              %Percentage
      of Total Revenue
              
              
              45
              %
              
              
              47
              %Contract
      Revenue
              
              
              14,385
              
              
              
              11,633
              
              
              
              24
              %Percentage
      of Total Revenue
              
              
              55
              %
              
              
              53
              %Total
      Revenue
              
              $
              26,217
              
              
              $
              22,152
  Royalties.   The
12% increase in royalties primarily resulted from the addition of royalties from
an increase in PBG royalty volumes compared to the prior year on chips sold by
our licensees and the addition of the ABG royalties of $200,000following the acquisition
of Chipidea in August 2007 compared to $50,000 in the first quarter of fiscal
2008.
  License and Contract
Revenue.  The 24% increase in contract revenue is due to the impact
of having a full quarter of ABG revenue in the quarter ended September 30, 2008
as compared to only 5 weeks of revenue contributing to the first quarter of
fiscal 2008.  In the first quarter of fiscal 2009, contract revenues
from the ABG were $6.4 million compared to $2.2 million in first quarter of
fiscal 2008.   The ABG entered into 16 new contracts in the first
quarter of fiscal 2009.  Revenue from the ABG contracts is generally
recognized on a percentage of completion basis over the period of contract
performance.  The ABG revenue increase was offset in part by a
decrease in license revenue generated by the PBG of $1.5
million.  There were 8 new agreements executed by the PBG in first
quarter of fiscal 2009 compared to 6 in first quarter of fiscal
2008.
 
 In our
PBG, we entered into a number of unlimited use license agreements with our
customers.  Under these agreements, customers generally pay a larger
fixed up-front fee to use one or more of our cores in unlimited SoC designs
during the term of the agreement, which can be up to 7 years.  We
recognize all license revenues under these unlimited use license agreements upon
execution of the agreement provided all revenue recognition criteria had been
met.  Contract revenue from unlimited use license agreements was $4.4
million in first quarter of fiscal 2009 as compared with $5.0 million in first
quarter of fiscal 2008.
  18
 Table of Contents
 
 Comparison
of Gross Margin and Operating Expenses
 
 The
following is a summary of certain consolidated statement of operations data for
the periods indicated:
  Three
      Months Ended
                September 30,2008
              
              
              2007
              
              
              Change
                in
                Percent(in
      thousands, except for percentages)Cost
      of Sales
              
              $
              7,644
              
              
              $
              3,324
              
              
              
              130
              %Gross
      Margin
              
              $
              18,573
              
              
              $
              18,828
              
              
              
              (1
              )%Gross
      Margin Percentage
              
              
              71
              %
              
              
              85
              %
              
              
              —Research
      and Development
              
              $
              7,347
              
              
              $
              9,013
              
              
              
              (18
              )%Sales
      and Marketing
              
              $
              5,045
              
              
              $
              5,586
              
              
              
              (10
              )%General
      and Administrative
              
              $
              6,957
              
              
              $
              7,009
              
              
              
              (1
              )%Acquired
      in-process research & development
              
              
              —
              
              
              $
              5,440
              
              
              
              —Restructuring
              
              $
              4,931
              
              
              $
              —
              
              
              
              —
  Cost of Sales.Cost of
sales includes salaries, depreciation, and the amortization of intangible
assets.  PBG cost of sales has historically been insignificant as the
majority of our PBG revenue is derived from royalties and licenses which have
insignificant related costs.  With the addition of the ABG in August
2007, our blended margins have decreased as ABG revenue is substantially driven
by relatively lower margin service related contract revenue.
 
 ABG
revenue is generated by projects which include the development
of technology that is directly related to the requirements of particular
licensees and license agreements and, accordingly entails a higher cost of sales
as compared to PBG.  As the acquisition was in the latter half of the
first quarter of fiscal 2008, our results for the first quarter of 2008 included
only 5 weeks of ABG cost of sales as compared to a full quarter of ABG sales for
the comparable period in fiscal 2009.
 
 Gross Margin.Gross
margin as a percentage of net revenue decreased to 71 percent in the first
quarter of fiscal 2009 compared to 85 percent in the comparable quarter in
fiscal 2008. The decrease in gross margin was primarily due to the first quarter
of fiscal 2009 including a full quarter of ABG revenue and corresponding cost of
sales compared with only 5 weeks of ABG cost of sales in the same period of the
prior year.
 
 Research and
Development.  Research and development expenses include salaries and
contractor and consultant fees, as well as costs related to workstations,
software, computer aided design tools, and stock-based compensation expense. The
costs we incur with respect to internally developed technology and engineering
services are included in research and development expenses as they are incurred
and are not directly related to any particular licensee, license agreement or
license fee.
  The $1.7
million decrease in research and development expenses for the first quarter of
fiscal 2009 compared to the same period in fiscal 2008 was primarily due to $0.6
million decrease in stock compensation expense, $0.4 million decrease in outside
services fees and $0.2 million decrease in bonus expense.  The
remainder of the $0.5 million decrease was spread across various expenses and
primarily related to the additional activities in the prior year associated with
the acquisition and integration of Chipidea.
  19
 Table of Contents
 
 Sales and Marketing. Sales
and marketing expenses include salaries, commissions and costs associated with
third party independent software development tools, direct marketing, other
marketing efforts and stock-based compensation expense. Our sales and marketing
efforts are directed at establishing and supporting our licensing
relationships.
  The $0.5
million decrease in sales and marketing expense for first quarter of fiscal 2009
over the comparable period in fiscal 2008 was primarily due to $0.2 million in
decrease in salary expenses and $0.2 million decrease in stock compensation
expense.
  General and Administrative.
General and administrative expenses comprise salaries, legal fees including
those associated with the establishment and protection of our patent, trademark
and other intellectual property rights which are integral to our business and
expenses related to compliance with the reporting and other requirements of a
publicly traded company including directors and officers liability insurance, in
addition to stock-based compensation expense.
  General
and administrative expenses were relatively flat at $7.0 million for the first
quarters of fiscal 2009 and 2008.
 
 Acquired In-process Research and
Development.In August 2007, we completed the acquisition of Chipidea, a
privately held supplier of analog and mixed signal intellectual property, for
cash consideration. The fair value of the in-process technology was determined
by estimating the present value of the net cash flows we believed would result
from the acquired technology. Because technological feasibility of certain of
the acquired technology had not been established and no future alternative use
for the in-process technology existed at the time of the acquisition, we
recorded a charge in the first quarter of fiscal 2008 of $5.4 million for the
acquired in-process research and development expense upon completion of the
acquisition.
  Restructuring Expense. In
August 2008 we announced a plan to reduce the Company’s operating costs by a
reduction in employee headcounts in the Company’s facilities in United States,
Israel, Portugal and closing of the Belgium center.  In total, 58
employees were given notice of termination during the first quarter of fiscal
2008, resulting in approximately $4.7 million of severance and benefits costs
recorded as restructuring expense.   In addition, asset disposal
and other closure totaling approximately $0.2 million were recorded as
restructuring expense in the first quarter of fiscal 2009.
  Other Income, Net. Other
income, net, for the first quarter of fiscal 2009 was an expense of $1.4 million
as compared to income of $0.4 million for the comparable period in fiscal 2008.
The decrease in other income was primarily due to a decrease in interest income
due to a decrease in our invested balances as we spent substantially all our
cash on the Chipidea acquisition in August 2007.  In addition, we
incurred approximately $0.8 million in foreign exchange remeasurement losses in
the first quarter of fiscal 2009 in connection with the weaker
euro.  We also incurred approximately $0.5 million in interest expense
and loan amortization fees in the first quarter of fiscal 2009.
  Income Taxes.   We
recorded an income tax benefit of $0.2 million for the three-month period ended
September 30, 2008 and an income tax benefit of $0.7 million for the comparable
period in fiscal 2008. For the Processor Business Group, we continued to
recognize a valuation allowance against the deferred tax assets in U.S.
as we believe that it is more likely than not that the deferred tax assets
will not be recognized.
  Our
estimated annual income tax for fiscal 2009 primarily consists of US deferred
tax from goodwill amortization, foreign tax and withholding tax, offset by
releases of unrecognized tax benefits that are no longer applicable. Our
estimated annual income tax for fiscal 2008 primarily consists of US federal,
state, foreign income taxes and withholding taxes, offset in part by certain
foreign tax credits and general business tax credits. The tax benefit recognized
for the quarter ended September 30, 2008 is lower than that of 2007 because we
are not recognizing the tax benefits from US income until it is more likely than
not that such benefits can be utilized.
   20
 Table of Contents
 
 Liquidity
and Capital Resources
 
 At
September 30, 2008, we had cash, cash equivalents and marketable investments of
$16.2 million, an increase of approximately $2.2 million from June 30,
2008.
 
 On July 3, 2008, we entered into a
new credit facility with Silicon Valley Bank (SVB). This new facility includes a
four year term loan of $15 million and a revolving credit line in the amount of
$10 million due on July 2, 2009. Loans under this facility are secured by
virtually all of our assets with the exception of IP, and the facility contains
affirmative and negative covenants that impose restrictions on the operation of
our business. Proceeds of $16.2 million from this new facility were used to pay
off our prior loan balance.  As of September 30, 2008, outstanding
balances under these facilities were $14.4 million for the term loan and $1.2
million for the revolving credit facility.  We borrowed the full
amount available under the $15 million term loan facility and paid off $0.6
million in the quarter ended September 30, 2008.  We had $8.8 million
available to borrow under the revolving credit line at September 30,
2008.
  On August 13, 2008, we announced a restructuring plan
designed to reduce $5 million in costs of sales and operating expenses per
quarter. With the reduction in interest and principle payments associated with
the new loan and the operating cost reductions being implemented in the first
and second fiscal quarters in 2009, we expect to improve our liquidity position
throughout the fiscal year.
  For complete statements of cash flows
for the three months ended September 30, 2008 and 2007, see our consolidated
financial statements.
 
 Net cash
provided by operating activities was $3.2 million for the quarter ended
September 30, 2008. The loss in the first quarter of fiscal 2009 was partially
offset by non-cash activities including amortization of acquired intangible
assets, depreciation expense and stock compensation expense.  In
addition, cash from operating activities increased as a result of accrued
restructuring costs, an increase in accrued compensation and a decrease in our
long term engineering design software licenses due to normal
amortization.
   21
 Table of Contents
  Net cash used
in operating activities was $1.0 million for the three month period ended
September 30, 2007, primarily due to our net loss partially offset by non-cash
charges including stock-based compensation under SFAS No. 123R,
depreciation, amortization of intangible assets, and acquired in-process
research and development costs.  Cash was used by a decrease in our
income taxes payable, a decrease in accrued compensation due to the payout of
accrued bonuses offset in part by an increase in accruals for services related
to the integration of Chipidea, and an increase in accounts receivable due to
the addition of the Analog Business Group.  This use of cash was
partially offset by cash provided by increases in our accrued liabilities
primarily due to increases from our Analog Business Group, and a decrease in
prepaid expenses and other assets due to interest received.
  Net cash used
in investing activities was $0.4 million for the three month period ended
September 30, 2008 as a result of capital expenditures in the
quarter.
  Net cash used
in investing activities was $122.2 million for the three month period ended
September 30, 2007.  This usage was primarily due to cash used for our
acquisition of Chipidea and the establishment of restricted cash accounts for
the amounts held in escrow related to the Chipidea acquisition.  This
use of cash was offset in part by $25.9 million of cash provided from the
proceeds of the sale of our marketable investments.
  Net cash used
in financing activities was $0.4 million for the three months ended
September 30, 2008. As we entered into a new credit facility and borrowed
amounts primarily to pay off existing debt, our net cash used in debt financing
activities was $0.4 million, which primarily related to monthly principal
payments for our new debt in the first quarter of fiscal
2009.
  Net cash
provided by financing activities was $21.6 million for the three months ended
September 30, 2007. Net cash provided by financing activities during the
three month period ended September 30, 2007 was primarily attributable to the
loan of $20 million under our revolving credit agreement established in
connection with the Chipidea acquisition and activity under our employee stock
plans, offset in part by cash paid for loan origination
fees.
  Our future liquidity
and capital requirements could vary significantly from quarter to quarter,
depending on numerous factors, including, among others:
  ·
              from time to time we have certain
      significant payments to suppliers including Computer Aided Design (CAD)
      system vendors required under long term purchase agreements. These
      payments vary and can be up to $2 million per
    quarter.
  ·
              from time to time we have certain
      significant payments to investors relating to prior acquisitions. These
      payments can range up to $2.5 million a
  quarter.
  ·
              our ability to continue to
      generate cash flow from
operations.
  ·
              financing activities under
      borrowing arrangements. Our borrowing availability with SVB varies
      according to MIPS’ accounts receivable and recurring royalty revenues and
      other terms and conditions described in the loan and security
      agreement.
  ·
              the costs associated with capital
      expenditures and our land and building in
  Portugal.
  ·
              level and timing of restructuring
      activities. In August 2008, we announced a corporate restructuring to
      better integrate the ABG and reduce overall cost structure. See Note 7 of
      the Notes to Consolidated Financial Statements for additional details on
      our restructuring
activities.
  We believe that we have sufficient cash
and borrowing capabilities to meet our projected operating and capital
requirements for the foreseeable future and at least the next twelve months.
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. Our failure to
raise capital when needed could have a material adverse effect on our business,
results of operations and financial condition.
   22
 Table of Contents
  Our
contractual obligations as of September 30, 2008 were as
follows:
  Payments
      due by period (in thousands)Total
              
              
              Less than
                1
      year
              
              
              1-3
                years
              
              
              3-5
                years
              
              
              More than
                5
      yearsOperating
      lease obligations (1)
              
              $
              10,031
              
              
              $
              2,863
              
              
              $
              3,121
              
              
              $
              2,177
              
              
              $
              1,870Capital
      lease obligations (2)
              
              
              8,397
              
              
              
              7,700
              
              
              
              693
              
              
              
              4
              
              
              
              —Purchase
      obligations (3)
              
              
              7,834
              
              
              
              4,781
              
              
              
              3,053
              
              
              
              —
              
              
              
              —Short
      Term Debt (4)
              
              
              8,227
              
              
              
              8,157
              
              
              
              70
              
              
              
              —
              
              
              
              —Other
      short-term liabilities reflected on our Balance Sheet (5)
              
              
              25,079
              
              
              
              25,079
              
              
              
              —
              
              
              
              —
              
              
              
              —Long
      Term Debt (6)
              
              
              11,489
              
              
              
              —
              
              
              
              8,284
              
              
              
              3,205
              
              
              
              —Other
      long-term liabilities and obligations (7)
              
              
              2,608
              
              
              
              —
              
              
              
              2,608
              
              
              
              —
              
              
              
              —Total
              
              $
              73,665
              
              
              $
              48,580
              
              
              $
              17,829
              
              
              $
              5,386
              
              
              $
              1,870
   (1)
              We
      lease office facilities and equipment under noncancelable operating leases
      that expire through 2016.  In connection with the lease for our
      Mountain View headquarters, we have entered into a letter of credit as a
      security deposit with a financial institution for $0.3 million, which is
      guaranteed by a time-based certificate of deposit.  In addition,
      we have entered into letters of credit of approximately $2.5
      million with various financial institutions in Portugal, Belgium,
      Norway, and France in association with certain building leases and
      government grants.
  (2)
              Commitments
      due under our capital leases for equipment and
  property.
  (3)
              Outstanding
      purchase orders for ongoing operations. Payments of these obligations are
      subject to the provision of services or products. Purchase obligations
      have decreased by approximately $0.8 million since June 30,
      2008.
  (4)
              Short
      term debt includes $5.7 million of principal and interest due under our
      SVB term loan and revolving credit facility, $2.3 million due under
      various credit lines and $0.2 million primarily due to a loan with a
      government agency in Portugal and the related future interest
      payment.
  (5)
              Short
      term liabilities includes:  $15.0 million related to an escrow
      account related to the Chipidea acquisition completed in August
      2007, $4.4 million liabilities related to an escrow account for
      the consideration contingent due upon continued employment of certain
      employees related to the Chipidea acquisition, $2.3 million related to a
      payment associated with the proposed sale of our Portugal, Lisbon
      building, $1.6 million due to shareholders of a company acquired by
      Chipidea prior to August 2007, and $1.7 million in payables for computer
      aided design licenses not included under outstanding purchase
      orders.
  (6)
              Long
      term debt includes $11.5 million of principal and interest due under the
      Silicon Valley term loan.
  (7)
              Long-term
      liabilities and obligations include:  $2.0 million due to
      employees under a deferred compensation plan, under which
      distributions are elected by the employees, and $0.6 million in
      payables for computer aided design licenses not included in outstanding
      purchase orders.
  The
      table above excludes liabilities under FASB Interpretation No. 48,
      “Accounting for Uncertainty in Income Taxes” as we are unable to
      reasonably estimate the ultimate amount or timing of
      settlement.
   23
 Table of Contents
  Critical
Accounting Polices and Estimates
  We
prepare our financial statements in conformity with U.S. generally accepted
accounting principles, 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.
We believe there have been no significant changes to the items we disclosed as
our critical accounting policies and estimates in our discussion and analysis of
financial condition and results of operations in our 2008 Form
10-K.
  ITEM 3.QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 We believe there have been no
significant changes to the discussion of quantitative and qualitative
disclosures about market risk in our 2008 Form 10-K.
 
 ITEM 4. 
CONTROLS AND
PROCEDURES
 
 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 (as such term is defined under Rule 12a-15(e)
under the Exchange Act) were not effective as of September 30, 2008,
because of the material weakness described in Part II, Item 9A, in our 2008
Annual Report on Form 10-K. In that section, we describe a material weakness in
our internal control over financial reporting as a result of errors found during
the preparation of our financial statements with regards to the process of
accounting for income taxes.
 
 Management began
implementing a remediation plan for this material weakness during
fiscal 2007.  Our remediation plan includes: a) reduction in the
turnover of internal and external tax professionals, b) consideration and
implementation of additional review of tax provision and reconciliations by
qualified personnel experienced in application of tax rules and regulations and
accounting for income taxes, and c) consultation with tax experts in a timely
manner.   Though we have made progress in hiring qualified tax
personnel and have set in place additional review procedures, that plan is
still in progress.  We expect to complete the implementation of the
controls included in this remediation plan during fiscal 2009. Competition for
highly qualified tax personnel remains intense in the Bay Area. Our inability to
attract and retain personnel with adequate experience and skills could make it
difficult to timely complete the remediation plan.
 
 Other
than the changes as part of the remediation plan discussed above, there were no
changes in our internal control over the financial reporting that occurred
during the first quarter of fiscal 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
  24
 Table of Contents
  PART II – OTHER INFORMATION
  ITEM 1. 
LEGAL
PROCEEDINGS
 
 A derivative action entitledIn re MIPS
Technologies, Inc. Derivative Litigation, Case No. C-06-06699-RMW, was
filed on October 27, 2006, in the United States District Court,
Northern District of California, against certain current and former MIPS
officers and directors and MIPS as a nominal defendant. The complaint in
the action alleges that the individual defendants breached their
fiduciary duties and violated California and federal securities laws as a result
of, among other things, purported backdating of stock option grants,
insider trading and the dissemination of false financial statements.
Plaintiff seeks to recover purportedly on behalf of MIPS, unspecified
monetary damages, corporate governance changes, equitable and injunctive relief,
and fees and costs. A motion to dismiss the consolidated complaint was
granted on January 11, 2008, with leave for plaintiff to amend. Plaintiff
filed an amended complaint and MIPS filed a second motion to dismiss which was
granted without leave to amend on August 13, 2008.  The time
within which plaintiff had the right to appeal has elapsed.  It is not
clear what, if any, action plaintiff will take in connection with this
matter.
  From time to time, we receive
communications from third parties asserting patent or other rights allegedly
covering our products and technologies. Based upon our evaluation, we may take
no action or we may seek to obtain a license, redesign an accused product or
technology, initiate a formal proceeding with the appropriate agency (e.g., the
U.S. Patent and Trademark Office) and/or initiate litigation. For additional
information regarding intellectual property litigation, see Part I,
Item 1A. Risk factors—“We may be subject to claims of
infringement”.
  ITEM 1A. 
RISK
FACTORS
 
 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, which could individually or collectively cause our stock
price to decline. The following list is not exhaustive and you should carefully
consider these risks and uncertainties before investing in our common
stock.
  Our financial
results could be negatively impacted by economic
conditions.
  During the first
quarter of fiscal 2008, we completed the acquisition of Chipidea, and there are
numerous risks associated with this
acquisition.In August 2007, we completed the
acquisition of Chipidea, a Portuguese company that supplies analog and mixed
signal intellectual property for the digital consumer, wireless and connectivity
markets. The purchase price for this acquisition was $147 million in cash paid
at closing, with contingent obligations to issue up to 610,687 shares of common
stock (or to pay the cash value of such shares) based on the performance of the
Chipidea business.
  This is a substantially larger
acquisition than any that we have previously completed and involves technology
and products that are largely new to us. Many of the risks discussed below under
“We may encounter difficulties with future acquisitions that could harm our
business” may be enhanced as a result of the Chipidea acquisition. Among the
many risks associated with the acquisition are the
following:
  ·
              the challenges and expense
      associated with integrating and managing a large acquired business, which
      challenge will be further complicated by the geographical distance between
      our headquarters in California and the Chipidea headquarters in
      Portugal;
  25
 Table of Contents
  ·
              our dependence on the MIPS
      management team to manage the Chipidea business, and integrate it with our
      existing business;
  ·
              the possible adverse impact to us
      of the recent resignation of Jose Franca, founder and CEO of Chipidea
      prior to the acquisition, and the ongoing risk of the loss of additional
      key personnel whose ongoing employment with us could be important to our
      ability to continue to advance the Chipidea technology and to effectively
      market and sell its
products;
  ·
              diversion of our management
      team’s attention as we seek to capitalize on the opportunities presented
      by this acquisition may adversely affect our ability to operate our
      existing business.
  We may not achieve the advantages that
we envisioned when we decided to complete this acquisition. In the fourth
quarter of fiscal 2008 we recorded substantial charges for the impairment of
goodwill and intangible assets from this acquisition, as our updated forecasts
for the business showed lower near and long term profitability than we had
estimated at the time of completing the acquisition. Supporting the licensing of
analog and mixed signal IP is relatively more labor intensive than that of our
microprocessor IP business, and we cannot be assured of our ability to achieve
operating results from this business that correspond to those that we can
achieve in our existing business. If we are not as successful as we anticipated
with the Chipidea business, our future operating results and financial condition
would be adversely affected.
  Ourcapacity to meet
financial obligations depends on our ability to generate positive cash
flow.We
used all of our available cash and short term investments to complete the
acquisition of Chipidea and we now have significant debt. This use of cash,
coupled with periodic negative cash flow in our Analog Business Group,
dramatically reduces our liquidity, and if we encounter difficulty in generating
cash from the operation of our business we may be required to curtail our
operations or take other acts that could adversely affect our ability to be
successful over the longer term.  Our term loan with Silicon Valley
Bank in the amount of $15 million is due and payable in monthly installments
over four years and has a revolving credit line in the amount of $10 million.
Under the terms of a Loan and Security Agreement we must pay off all amounts due
under the Revolving Credit Agreement or extend the agreement on or before
July 2, 2009. Loans under the new facility are secured by virtually all of
our assets, and the facility contains affirmative and negative covenants that
impose restrictions on the operation of our business.Certain restrictive covenants may limit
our ability to fund the international operations of our subsidiaries and
therefore may substantially and negatively impact our ability to conduct
business overseas or may accelerate the timing of when principal payments are
due.In
addition, we cannot be assured that we will be able to repay this debt on or
before its due date. We will be required to make interest payments for solong as this debt is
outstanding. This incurrence of long term debt could adversely affect our
operating results and financial condition and the sale of equity securities
could be on terms that are dilutive to our existing stockholders. Further, the
covenants contained in the credit facility may prevent us from taking advantage
of opportunities that are otherwise available to us or could cause an earlier
acceleration of the facility.  We may not be able to obtain favorable
credit terms related to any debt that we may incur in the
future.
  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. In
addition, our revenue components are difficult to predict and may fluctuate
significantly from period to period. Because our revenues are somewhat
independent of our expenses 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 very 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. Our acquisition
of Chipidea will increase the challenge that we face in planning and predicting
our future operating results. 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;
  ·
              our ability to successfully
      conclude licensing agreements of any significant value in a given quarter,
      particularly as we have become more reliant on larger transactions in
      PBG;
  ·
              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;
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  ·
              the demand for products that
      incorporate our technology;
  ·
              our ability to develop, introduce
      and market new intellectual
property;
  ·
              the establishment or loss of
      licensing relationships with semiconductor companies or digital consumer,
      wireless, connectivity 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, wireless, connectivity and
      business product manufacturers;
and
  ·
              uncertain economic and market
      conditions.
  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,
wireless, connectivity and business product manufacturers, adopting our
technology and using it in the products they sell. Our PBG contract revenue
declined 12% in fiscal 2006, increased by 42% in fiscal 2007 and declined by 23%
in fiscal 2008. In addition, our PBG contract revenue decreased by 19% in the
first quarter of fiscal 2009 as compared to the same period of fiscal 2008. In
our PBG, we entered into a number of unlimited use license agreements with our
customers. Under these agreements, customers generally pay a larger fixed
up-front fee to use a number of our cores in unlimited SoC designs during the
term of the agreement, which is generally between 4 and 7 years. The number of
licensed cores can vary from one core to every core currently available. We
recognize all license revenues under these unlimited use license agreements upon
execution of the agreement, provided all revenue recognition criteria had been
met. Contract revenue fromunlimited use license agreement was 69%
in fiscal 2008, 49% in fiscal 2007, and 32% in fiscal 2006 of the total PBG
license and contract revenue. Additionally, contract revenue from unlimited use
license agreements was $4.4 million in first quarter of fiscal 2009 as compared
with $5.0 million in first quarter of fiscal 2008. Historically, a license-based
business can have strong quarters or weak quarters depending on the number and
size of the license deals closed during the quarter. 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.
  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 or 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 IP product offerings 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,
      wireless, connectivity and business
  products;
  ·
              our ability to anticipate and
      timely respond to changes in semiconductor manufacturing
      processes;
  ·
              changing customer preferences in
      the digital consumer, wireless, connectivity and business products
      markets;
  ·
              the emergence of new standards in
      the semiconductor industry and for digital consumer, wireless,
      connectivity 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.
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  Our failure to adequately address these
risks could render our existing IP product offerings 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 IP product offerings 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.
  In our Processor
business 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 audit 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.
  If we do not compete
effectively in the market for SoC intellectual property cores and related
designs, our business will be adversely affected.Competition in the market
for SoC intellectual property and related designs is intense. Our products
compete with those of other designers and developers of IP product offerings, as
well as those of semiconductor manufacturers whose product lines include
digital, analog and/or mixed signal designs for embedded and non-embedded
applications. In addition, we may face competition from the producers of
unauthorized clones of our processor and other technology designs. The market
for embedded processors in particular 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 intellectual
property 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.
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  Some of our existing competitors, as
well as a number of potential new competitors, have longer operating histories,
greater brand recognition, larger customer bases as well as greater financial
and marketing resources than we do. This may allow them to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. It may also allow them to devote greater resources than we can to
the development and promotion of their technologies and
products.
  We may incur
restructuring charges in the future, which could harm our results of
operations.OnOndOn August 13, 2008, we announced
a plan to reduce the Company’s operating costs by a reduction in employee
headcount. This plan involves the termination of employees in our facilities in
the United States, Israel and Europe. We expect to complete all actions under
the restructuring by June 30, 2009 and we now expect to incur aggregate
costs associated with this plan of approximately $6.0 million to $6.5 million.
It is expected that the majority of these costs will consist of employee
severance charges. These restructuring activities may not be sufficient to
appropriately align our operating expenses with our revenue
expectations. If we have not sufficiently reduced operating expenses or if
revenues are below our expectations, we may be required to engage in additional
restructuring activities, which could result in additional restructuring
charges. These restructuring charges could harm our results of operations.
Further, our restructuring plans could result in a potential adverse effect on
employee capabilities that could harm our efficiency and our ability to act
quickly and effectively in the rapidly changing technology markets in which we
sell our products.
  Our operations in
foreign countries are subject to political and economic
risks.With the
acquisition of Chipidea we have substantially expanded our operations outside
the United States. In addition to the main Chipidea facilities in Portugal,
we also have operations in China, France, Macau, Norway, Switzerlandand Poland as well as
sales offices in China, Germany, Japan, Israel, Korea and Taiwan.  Our
operations in countries outside the U.S. subject us to risks,
including:
  ·
              changes in tax laws, trade
      protection measures and import or export licensing
      requirements;
  ·
              potential difficulties in
      protecting our intellectual
property;
  ·
              changes in foreign currency
      rates;
  ·
              restrictions, or taxes, on
      transfers of funds between entities or facilities in different countries;
      and
  ·
              changes in a given country’s
      political or economic
conditions.
  As a
result of one or more of these risks, our operating costs could increase
substantially, our flexibility in operating our business could be impaired, our
taxes could increase, and our sales could be adversely affected. Any of
these items could have an adverse affect on our financial condition or results
of operations.
  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. This
dependence is enhanced with our acquisition of Chipidea, as our ability to
successfully operate this business in the future will depend significantly on
our ability to retain key Chipidea management and employees. We cannot assure
that we will retain our key officers and employees. Competition for qualified
personnel, particularly those with significant experience in the semiconductor,
analog, mixed signal 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.
  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 regulations or
the interpretation of tax laws or regulations. 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 examinations will not have an adverse effect on our operating
results and financial condition.
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  We may be subject to
litigation and other legal claims that could adversely affect our financial
results.From
time to time, we are subject to litigation and other legal claims incidental to
our business. In addition, it is standard practice for us to include some form
of indemnification of our licensees in our core and architecture license
agreements, and from time to time we respond to claims by our licensees with
respect to these obligations. It is possible that we could suffer unfavorable
outcomes from litigation or other legal claims, including those made with
respect to indemnification obligations, 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.
  We may be subject to
claims of infringement.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.
  From time to time, we receive
communications from third parties asserting patent or other rights allegedly
covering our products and technologies. Based upon our evaluation, we may take
no action or we may seek toobtain a license, redesign an accused
product or technology, initiate a formal proceeding with the appropriate agency
(e.g., the U.S. Patent and Trademark Office) and/or initiate litigation. There
can be no assurance in any given case that a license will be available on terms
we consider reasonable or that litigation can be avoided if we desire to do so.
If litigation does ensue, the adverse third party will likely seek damages
(potentially including treble damages) and may seek an injunction against the
sale of our products that incorporate allegedly infringed intellectual property
or against the operation of our business as presently conducted, which could
result in our having to stop the sale of some of our products or to increase the
costs of selling some of our products. Such lawsuits could also damage our
reputation. The award of damages, including material royalty payments, or the
entry of an injunction against the sale of some or all of our products, could
have a material adverse affect on us. Even if we were to initiate litigation,
such action could be extremely expensive and time-consuming and could have a
material adverse effect on us. We cannot assure you that litigation related to
our intellectual property rights or the intellectual property rights of others
can always be avoided or successfully concluded.
  Even if we were to prevail, any
litigation could be costly and time-consuming and would divert the attention of
our management and key personnel from our business operations, which could have
a material adverse effect on us.
  Our intellectual
property may be misappropriated or expire, and we may be unable to obtain or
enforce intellectual property rights.We rely on a combination of
protections provided by contracts, including confidentiality and nondisclosure
agreements, copyrights, patents, trademarks, and common-law rights, such as
trade secrets, to protect our intellectual property. 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. 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, intellectual property rights which we have obtained in particular
geographies may and do expire from time to time. As a result, we cannot be
certain that we will be able to prevent other parties from designing and
marketing unauthorized MIPS compatible products that others will not
independently develop or otherwise acquire the same or substantially equivalent
technologies as ours, or that others will not use information contained in our
expired patents to successfully compete against us. 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, and
patents that have issued do expire over time. Recent judicial decisions and
proposed legislation in the United States may increase the cost of obtaining
patents, limit the ability to adequately protect our proprietary technology, and
have a negative impact on the enforceability of our patents. In addition,
effective trade secret protection may be unavailable or limited in certain
countries. If we are unable to protect, maintain 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.
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  We have recorded
long-lived assets, and our results of operations would be adversely affected if
their value becomes impaired.Although we took a
substantial charge in the fourth quarter of fiscal 2008 for the impairment of
goodwill and acquired intangible assets associated with the Chipidea acquisition
and prior acquisitions, we continue to carry substantial amounts of acquired
intangible assets and goodwill. If we complete additional acquisitions in the
future, our acquired intangible asset amortization expenses could further
increase, and we may be required to record additional amounts of goodwill. In
addition, we have made investments in certain private companies which could
become impaired if the operating results of those companies change
adversely. We evaluate our long-lived assets, including acquired intangible
assets, goodwill and investments in private companies 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 future, if we
make a further determination that our long-lived assets are impaired, we will
have to recognize additional charges for the impairment. We cannot be sure that
we will not be required to record additional long-lived asset impairment charges
in the future. Our determination of fair value of long-lived assets relies on
management’s assumptions of our future revenues, operating costs, and other
relevant factors. If management’s estimates of future operating results change
or if there are changes to other assumptions such as the discount rate applied
to future cash flows, the estimate of the fair value of our reporting units
could change significantly, which could result in additional goodwill impairment
charges.
  We cannot be assured
that our recent restructurings will sufficiently reduce our expenses relative to
future revenue and may have to implement additional restructuring plans in order
to reduce our operating costs.We have
implemented restructuring plans in the past to reduce our operating costs,
including plans announced in January and August 2008. We may not realize fully
the anticipated benefits of the restructuring plans, which may lead to
additional future restructurings to align our expenses with our anticipated
revenue. If we are required to do so, we likely would incur additional amounts
of material restructuring charges.
  
 ITEM 6. 
EXHIBITS
  (a) 
Exhibits
  10.1
              Loan and Security Agreement with
      Silicon Valley Bank (incorporated herein by reference as described in the
      Company's Current Report on Form 8-K filed on July 8,
      2008).
  10.2
                Memorandum
      defining special compensation paid to Maury Austin,
      CFO.
 
 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.*
  
 *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 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
  31
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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 corporationNovember 7,
      2008
            By:
            /s/ MAURY
      AUSTINMaury AustinVice President and Chief
      Financial Officer(Principal Financial
      Accounting Officer)








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