---

---

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

FORM 10-Q

|(Mark One)                                       |                                                                                          
|------------------------------------------------ | -----------------------------------------------------------------------------------------
|ý                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
|FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
|OR                                              
|o                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|For the transition period from
 to
.            

Commission file number 000-24487

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

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

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

Registrants'
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 ý No o

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

As
of January 31, 2003, the number of outstanding shares of the Registrant's Class A common stock, $.001 par value, was 14,997,440. As of January 31, 2003, the
number of outstanding shares of the Registrant's Class B common stock, $.001 par value, was 25,057,715.

---

---

---



|                             |  |                                                                                       |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements (Unaudited):                                                     |  |     
|                             |  | Condensed Consolidated Balance Sheets                                                 |  | 3   
|                             |  | Condensed Consolidated Statements of Operations                                       |  | 4   
|                             |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|                             |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|Item 2.                      |  | Management's Discussion and Analysis of Results of Operations and Financial Condition |  | 11  
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22  
|Item 4.                      |  | Evaluation of Disclosure Controls and Procedures                                      |  | 22  
|PART IIOTHER INFORMATION   
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                   |  | 23  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |  | 23  
|Signatures                   |  | 24                                                                                   

2

---



PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                     |                                           | December 31,
2002          |         | June 30,
2002 |        
|------------------------------------ | ----------------------------------------- | -------------------------- | ------- | ------------- | -------
|ASSETS                               |                                          
|Current assets:                      |                                           |                            |         |               |        
|                                     | Cash and cash equivalents                 |                            | $       | 86,141        |        
|                                     | Short-term investments                    |                            |         | 5,000         |        
|                                     | Accounts receivable                       |                            |         | 2,342         |        
|                                     | Prepaid expenses and other current assets |                            |         | 7,525         |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total current assets       |         |               | 101,008
|                                     | Equipment and furniture, net              |                            |         | 5,618         |        
|                                     | Intangible assets, net                    |                            |         | 4,065         |        
|                                     | Other assets                              |                            |         | 5,378         |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | $                          | 116,069 |               | $      
|                                     |                                           |                            |         |               |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                          
|Current liabilities:                 |                                           |                            |         |               |        
|                                     | Accounts payable                          |                            | $       | 2,260         |        
|                                     | Accrued liabilities                       |                            |         | 12,336        |        
|                                     | Deferred revenue                          |                            |         | 2,618         |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total current liabilities  |         |               | 17,214 
|Stockholders' equity:                |                                           |                            |         |               |        
|                                     | Common stock                              |                            |         | 40            |        
|                                     | Additional paid-in capital                |                            |         | 179,656       |        
|                                     | Accumulated other comprehensive income    |                            |         | 580           |        
|                                     | Deferred compensation                     |                            |         | (1,658        | )      
|                                     | Accumulated deficit                       |                            |         | (79,763       | )      
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total stockholders' equity |         |               | 98,855 
|                                     |                                           |                            |         |               |        
|                                     |                                           | $                          | 116,069 |               | $      
|                                     |                                           |                            |         |               |        

See
accompanying notes.

3

---



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

|                                                              |                                              | Three Months Ended
December 31, |         | Six Months Ended
December 31, |       
|------------------------------------------------------------- | -------------------------------------------- | ------------------------------- | ------- | ----------------------------- | ------
|
|Revenue:                                                      |                                              |                                 |         |                               |       
|                                                              | Royalties                                    |                                 | $       | 4,134                         |       
|                                                              | Contract revenue                             |                                 |         | 6,244                         |       
|                                                              |                                              |                                 |         |                               |       
|                                                              |                                              | Total revenue                   |         |                               | 10,378
|Costs and expenses:                                           |                                              |                                 |         |                               |       
|                                                              | Cost of contract revenue                     |                                 |         | 250                           |       
|                                                              | Research and development                     |                                 |         | 9,107                         |       
|                                                              | Sales and marketing                          |                                 |         | 3,859                         |       
|                                                              | General and administrative                   |                                 |         | 2,015                         |       
|                                                              | Acquired in-process research and development |                                 |         |                              |       
|                                                              | Restructuring                                |                                 |         | 7,634                         |       
|                                                              |                                              |                                 |         |                               |       
|                                                              |                                              | Total costs and expenses        |         |                               | 22,865
|                                                              |                                              |                                 |         |                               |       
|Operating loss                                                |                                              |                                 | (12,487 | )                             |       
|Other income (expense), net                                   |                                              |                                 | (916    | )                             |       
|                                                              |                                              |                                 |         |                               |       
|Loss before income taxes                                      |                                              |                                 | (13,403 | )                             |       
|Provision (benefit) for income taxes                          |                                              |                                 | 856     |                               |       
|                                                              |                                              |                                 |         |                               |       
|Net loss                                                      |                                              | $                               | (14,259 | )                             | $     
|                                                              |                                              |                                 |         |                               |       
|Net loss per basic and diluted share                          |                                              | $                               | (0.36   | )                             | $     
|                                                              |                                              |                                 |         |                               |       
|Shares used in computing net loss per basic and diluted share |                                              |                                 | 39,421  |                               |       
|                                                              |                                              |                                 |         |                               |       

See
accompanying notes.

4

---



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

|                                               |                                                                                  | Six Months Ended
December 31,                                 |                                  
|---------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------
|
|Operating activities:                          |                                                                                  |                                                               |                                  
|                                               | Net loss                                                                         |                                                               | $                                
|                                               | Adjustments to reconcile net loss to net cash used in operating activities:      |                                                               |                                  
|                                               |                                                                                  | Depreciation                                                  |                                  
|                                               |                                                                                  | Restructuring costs                                           |                                  
|                                               |                                                                                  | Write-off of investment in privately-held companyLexra, Inc. |                                  
|                                               |                                                                                  | Acquired in-process research and development                  |                                  
|                                               |                                                                                  | Other non-cash charges                                        |                                  
|                                               |                                                                                  | Changes in operating assets and liabilities:                  |                                  
|                                               |                                                                                  |                                                               | Accounts receivable              
|                                               |                                                                                  |                                                               | Accounts payable                 
|                                               |                                                                                  |                                                               | Other assets and liabilities, net
|                                               |                                                                                  |                                                               |                                  
|                                               |                                                                                  |                                                               |                                  
|Investing activities:                          |                                                                                  |                                                               |                                  
|                                               | Purchases of short-term investments                                              |                                                               |                                  
|                                               | Maturities of short-term investments                                             |                                                               |                                  
|                                               | Capital expenditures                                                             |                                                               |                                  
|                                               | Purchases of intangible assets                                                   |                                                               |                                  
|                                               | Purchase of investment in privately-held companyLexra, Inc.                     |                                                               |                                  
|                                               | Acquisition of Algorithmics Limited and an affiliated company, DFS3 Limited, net |                                                               |                                  
|                                               | Payment related to purchase of intangible assets in a prior period               |                                                               |                                  
|                                               |                                                                                  |                                                               |                                  
|                                               |                                                                                  |                                                               |                                  
|Financing activities:                          |                                                                                  |                                                               |                                  
|                                               | Net proceeds from issuance of common stock                                       |                                                               |                                  
|                                               | Loan repayment                                                                   |                                                               |                                  
|                                               |                                                                                  |                                                               |                                  
|                                               |                                                                                  |                                                               |                                  
|Foreign currency translation adjustment        |                                                                                  |                                                               | 373                              
|                                               |                                                                                  |                                                               |                                  
|Net decrease in cash and cash equivalents      |                                                                                  |                                                               | (4,571                           
|Cash and cash equivalents, beginning of period |                                                                                  |                                                               | 90,712                           
|                                               |                                                                                  |                                                               |                                  
|Cash and cash equivalents, end of period       |                                                                                  | $                                                             | 86,141                           
|                                               |                                                                                  |                                                               |                                  

See
accompanying notes.

5

---



MIPS TECHNOLOGIES, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED

Note 1. Description of Business and Basis of Presentation

Formation of MIPS Technologies, Inc. (MIPS).Silicon Graphics, Inc. acquired our
predecessor MIPS Computer Systems, Inc. in 1992 and continued the MIPS processor business through its MIPS Group. In December 1997, Silicon Graphics initiated a plan to separate the
business of the MIPS Group from its other operations and in April 1998, our Board of Directors approved a transaction pursuant to which Silicon Graphics transferred to us the assets and
liabilities related to the design and development of processor intellectual property for embedded market applications. We were a majority owned subsidiary of Silicon Graphics from the closing of our
initial public offering on July 6, 1998 until June 20, 2000, when Silicon Graphics distributed all of its remaining interest in us in the form of a stock dividend of Class B
common stock to its stockholders.

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

The
condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim
financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these
interim statements as allowed by such SEC rules and regulations. The balance sheet at June 30, 2002 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, 2002, included in our 2002
Annual Report on Form 10-K.

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

Revenue Recognition.We derive revenue from fees for the transfer of proven and reusable intellectual
property components or the performance of engineering services. We enter into licensing agreements that provide licensees the right to incorporate MIPS' intellectual property components in their
products with terms and conditions that have historically varied by licensee. Generally, these payments include a nonrefundable technology license fee, which is payable upon the transfer of
intellectual property, or a nonrefundable engineering service fee, which generally is payable upon achievement of defined milestones. In addition, these agreements also include royalty payments, which
are payable upon sale of a licensee's product, and maintenance and limited support fees. We classify all revenue that involves the sale of a licensee's products as royalty revenue. Royalty revenue is
recognized in the quarter in which a report is received from a licensee detailing the shipments of products incorporating our intellectual property components (i.e., in the quarter following the sale
of licensed product by the licensee). We classify all revenue that does not involve the sale of a licensee's products, primarily license fees and engineering service fees and maintenance and support
fees, as contract

6

---

revenue. License fees are recognized upon the execution of the license agreement and transfer of intellectual property, provided no further significant performance obligations exist and
collectibility is deemed probable.

Fees
related to engineering services contracts, which are performed on a best efforts basis and for which we receive periodic milestone payments, are recognized as revenue over the
estimated development period, using a cost-based percentage of completion method. We do not recognize revenue under engineering services contracts in amounts exceeding the amount of
milestone payments received.

Annual
maintenance and support fees, renewable by the licensee, are classified as contract revenue and are amortized over the period of support, generally 12 months. Since the
beginning of fiscal 2002, revenue from these arrangements has remained generally constant in absolute dollars, but has been increasing as a percentage of total revenue.

Cash and Cash Equivalents and Short-term Investments.Cash and cash equivalents consists
mainly of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition. Short-term investments consist
mainly of financial instruments that have original maturities of one year or less at the time of original acquisition. The fair values of
cash and cash equivalents and short-term investments approximated their cost at December 31, 2002 and June 30, 2002.

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

Note 2. Computation of Earnings Per Share

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

|                                                              |                                                     | Three Months Ended
December 31, |        | Six Months Ended
December 31, |  
|------------------------------------------------------------- | --------------------------------------------------- | ------------------------------- | ------ | ----------------------------- | -
|
|Numerator:                                                    |                                                     |                                 |        |                               |  
|                                                              | Net loss                                            |                                 | $      | (14,259                       | )
|                                                              |                                                     |                                 |        |                               |  
|Denominator:                                                  |                                                     |                                 |        |                               |  
|                                                              | Weighted-average shares of common stock outstanding |                                 |        | 39,946                        |  
|Less: Weighted-average shares subject to repurchase           |                                                     |                                 | (525   | )                             |  
|                                                              |                                                     |                                 |        |                               |  
|Shares used in computing net loss per basic and diluted share |                                                     |                                 | 39,421 |                               |  
|Net loss per basic and diluted share                          |                                                     | $                               | (0.36  | )                             | $

Note 3. Comprehensive Income (Loss)

Total comprehensive income (loss) includes net income (loss) and other comprehensive income, which for us primarily comprises unrealized gains and losses from
foreign currency adjustments. Total

7

---

comprehensive loss for the first six months of fiscal 2003 was $17.8 million and total comprehensive loss for the comparable period in the prior year was $4.1 million.

Note 4. Acquisition and Investment

In December 2001, we acquired a small equity interest in Lexra, Inc., a privately held company, and recorded an investment of $1.4 million.

In
July 2002, we acquired Algorithmics Limited, a United Kingdom-based tool chain company, and an affiliated company, DFS3 Limited. The total purchase price for both companies was
approximately $3.1 million and consisted of $800,000 in cash, the issuance of approximately 520,000 shares of our common stock valued at approximately $1.9 million, and
acquisition-related costs of approximately $485,000. The value of the common stock has been recorded as deferred compensation and will be amortized to expense over a three-year period.

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

In
December 2002, we recorded an impairment charge of $1.4 million as we wrote off the full value of our investment in Lexra, Inc.

Note 5. Purchased Intangible Assets

All of our purchased intangible assets, except goodwill, are subject to amortization. Purchased intangible assets subject to amortization consisted of the
following as of December 31, 2002 and June 30, 2002 (in thousands):

|                       |                             | December 31, 2002 |       | June 30, 2002
|---------------------- | --------------------------- | ----------------- | ----- | -------------
|
|Developed technology   |                             | $                 | 86    |              
|Core/patent technology |                             |                   | 4,176 |              
|Other                  |                             |                   |      |              
|                       |                             |                   |       |              
|                       | Purchased intangible assets |                   | $     | 4,262        
|                       |                             |                   |       |              

During
the second quarter of fiscal 2003, we purchased certain patents and patent applications for an aggregate consideration of $1.1 million.

During
the second quarter of fiscal 2002, we acquired from Lexra, Inc. certain technology related to our processor architectures and cores. We recorded a valuation of $1.7 million
for developed technology and $2.9 million for core technology.

During
the second quarter of fiscal 2003, as part of our restructuring activities discussed in Note 6, we determined that we would not seek to integrate into our product plans the
developed technology we acquired from Lexra, Inc. in December 2001 and recorded an impairment charge for approximately $1.2 million, the remaining value of this asset.

Amortization
expense related to purchased intangible assets was $216,000 for the three months ended December 31, 2002 and was zero for the comparable period in fiscal 2002.
Amortization expense related to purchased intangible assets was $474,000 for the first six months of fiscal 2003 and was zero for the comparable period in fiscal 2002.

8

---

The estimated future amortization expense of existing purchased intangible assets is approximately $296,000, $592,000, $553,000, $549,000 and $549,000 for the remaining six months of
fiscal year 2003 and for fiscal years 2004, 2005, 2006 and 2007, respectively, and approximately $1.3 million for years following fiscal 2007.

Note 6. Restructuring Charge

In the second quarter of fiscal 2003, we closed our Denmark design center to consolidate our research and development activities in our headquarters in California
and in our recently acquired design center in the United Kingdom. In addition, we implemented plans to eliminate 67 regular positions or about 30% of our global workforce by the end of fiscal 2003
across all functions with the objective of reducing our operating expenses. These actions resulted in a restructuring charge in the second quarter of fiscal 2003 of approximately $7.6 million.
The restructuring charge includes approximately $3.3 million of employee severance and related benefits, $1.7 million of facilities exit costs, primarily related to lease expenses net of
anticipated sublease income, $2.5 million in asset write-offs and $174,000 in legal and other costs. These costs and activities are accounted for under EITF Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit an Activity.

A
summary of restructuring activities follows below (in thousands). The balance of each category presented was zero as of October 1, 2002.

|                           |  | Restructuring
Charges |       | Cash |   | Non-cash |   | Balance
December 31, 2002
|-------------------------- |  | --------------------- | ----- | ---- | - | -------- | - | -------------------------
|Severance                  |  | $                     | 3,329 |      | $ | (1,258   | ) | $                        
|Facilities                 |  |                       | 1,653 |      |   | (32      | ) |                          
|Intangible asset write-off |  |                       | 1,191 |      |   |         |   |                          
|Other asset write-off      |  |                       | 1,287 |      |   |         |   |                          
|Other costs                |  |                       | 174   |      |   | (43      | ) |                          
|                           |  |                       |       |      |   |          |   |                          
|Total                      |  | $                     | 7,634 |      | $ | (1,333   | ) | $                        
|                           |  |                       |       |      |   |          |   |                          

Our
restructuring plans included vacating the facilities at our Denmark design center. The $1.7 million estimated charge for vacating this facility is comprised of our future
obligations of $6.4 million under the facility operating lease expiring in March, 2010, partially offset by estimated sublease income of approximately $4.7 million. The sublease income
assumption we have made with respect to the Denmark facility is based on current and expected real estate market conditions in nearby Copenhagen, Denmark, and necessarily entail a high level of
management judgment. These market conditions can fluctuate greatly due to such factors as changes in property occupancy rates and the rental prices charged for comparable properties. As a result, in
future periods, we may be required to record significant additional charges or reverse currently accrued amounts.

As
part of our restructuring plan, we decided to reduce our investment in research and development, and we revised our product plans. We determined that we would not seek to integrate
into our product plans the developed technology we acquired from Lexra, Inc. in December 2001 and recorded an impairment charge of $1.2 million for the remaining value of this
intangible asset.

Other
assets written off include leasehold improvements and computer aided design software related to vacating the Denmark facilities. Other costs are composed primarily of legal fees
and other restructuring costs.

As
of December 31, 2002, the remaining restructuring cost accrual was $3.8 million. The severance and benefit costs associated with 12 of the positions eliminated were paid
as of December 31, 2002. The remaining severance of $2.1 million related to the other 55 positions eliminated is expected to be

9

---

paid through April 2003. The operating lease accrual, net of estimated sublease income, is made up of lease payments to be paid through March 2010. Actual future cash requirements may
differ materially from the amounts accrued at December 31, 2002, particularly if actual sublease income differs significantly from current estimates.

Note 7. Recent Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit and Disposal
Activitieseffective for exit or disposal activities initiated after December 31, 2002. This statement revises the accounting for exit and disposal activities under EITF
Issue 94-3,Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity.Under SFAS No. 146
companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, rather than when a commitment is made to an exit or disposal plan.

In
December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148,Accounting for Stock-Based
CompensationTransition and Disclosure. SFAS No. 148 amends SFAS No. 123Accounting for Stock-Based Compensationto provide alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. The additional disclosure requirements of SFAS No. 148 are effective for fiscal
years ending after December 15, 2002. We have elected to continue to follow the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion No. 25 (or APB
25),Accounting for Stock Issued to Employees, to account for employee stock options.

In
November 2002, the FASB issued Interpretation No. 45 (FIN 45),Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The
provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's year end. We currently do not have guarantees required to be disclosed under FIN 45. We do not expect the adoption of
FIN 45 will have a material impact on our financial position, results of operation, or cash flow.

10

---



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

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

Critical Accounting Polices and Estimates

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

Accrued Facilities Restructuring Costs.In October 2002, we implemented plans to restructure the company that included
exiting our Denmark research facility, and we recorded a restructuring charge in the second quarter of fiscal 2003 to reflect the anticipated costs of the restructuring. Among other things, the
anticipated costs included lease charges that were based on assumptions about future rental income that might be received on the property we vacated. If, in the future, it is determined that we have
over-accrued for restructuring charges, the reversal of such over-accrual would have a favorable impact on our financial statements in the period this was determined and would
be recorded as a credit to restructuring costs. Conversely, if it is determined that our accrual is insufficient, an additional charge would have an unfavorable impact on our financial statements in
the period this was determined.

For
a discussion of our other critical accounting policies, please see "Critical Accounting Policies and Estimates" in Item 7 of our Annual Report on Form 10-K for the
year ended June 30, 2002.

Results of Operations

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

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

Contract
revenue includes technology license fees and engineering services fees. We receive license fees for the use of technology that we have developed internally and, in some cases,
which we have

11

---

licensed from third parties. License fees are typically recognized upon the execution of the license agreement and transfer of intellectual property, provided no further significant performance
obligations exist and collectibility is deemed probable. Technology license fees vary based on, among other things, whether a particular technology is licensed for a single application or for multiple
or unlimited applications, and whether the license granted covers a particular design or a broader architecture. Fees related to engineering services contracts, which are performed on a best efforts
basis and for which we receive periodic milestone payments, are recognized as revenue over the estimated development period using a cost-based percentage of completion method. In most
instances, the technology we develop, including under engineering services contracts, can be licensed to multiple customers.

Total
revenue for the second quarter of fiscal 2003 was $10.4 million and for the first six months of fiscal 2003 was $19.8 million compared to $12.0 million and
$24.5 million for the comparable periods in fiscal 2002. Royalties for the second quarter of fiscal 2003 were $4.1 million and for the first six months of fiscal 2003 were
$7.7 million compared to and $4.7 million and $9.4 million for the comparable periods in fiscal 2002. The decrease in both periods was due to lower royalties derived from sales of
Nintendo products, which continue to decline and have been insignificant in fiscal 2003. Royalties excluding royalties from Nintendo 64 game products increased 27% in the second quarter of fiscal 2003
and increased 14% for the first six months of fiscal 2003 compared to the comparable periods in fiscal 2002 due primarily to an increase in the number of new customers shipping products incorporating
our
technology. Contract revenues for the second quarter of fiscal 2003 were $6.2 million and for the first six months of fiscal 2003 were $12.2 million compared to $7.3 million and
$15.0 million for the same periods in fiscal 2002. The decrease in both periods resulted from our completing only four new license agreements in the second quarter of fiscal 2003 and six new
agreements in the first six months of fiscal 2003 compared to nine and sixteen agreements in the same periods in 2002. In addition, these agreements were generally lower in value due to a shift in
demand towards our 32-bit core designs than in the corresponding periods in fiscal 2002. We continue to experience a longer sales cycle compared to the comparable periods in fiscal 2002, which we
believe is due to our customers lengthening their decision making process in response to current economic conditions. Contract revenue for the second quarter of fiscal 2003 included an aggregate of
$2.0 million in fees paid by a customer for a license to use our technology and to resolve our claims of infringement of our intellectual property rights for prior use of our technology. The
amount of engineering service fees recognized in the second quarter and first six months of fiscal 2003 decreased slightly compared to the same periods in the prior year. We expect that contract
revenue will be greater than 50% of our total revenue for the fiscal year ending June 30, 2003.

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

Cost
of contract revenue for the second quarter and first six months of fiscal 2003 and 2002 was $250,000. We expect that in future periods cost of contract revenue will continue to be
immaterial.

Research and Development.Costs incurred with respect to technology we develop internally and engineering services we perform
which are not directly related to any particular licensee, license agreement or license fee are recorded as research and development expense.

Research
and development expenses for the second quarter of fiscal 2003 were $9.1 million and for the first six months of fiscal 2003 were $17.6 million compared with
research and development expenses of $8.1 million and $16.9 million for the comparable periods in fiscal 2002. The increase in research and development expenses in both periods was due
to an increase in employee compensation as well as an increase in amortization expense resulting from the amortization of intangible assets and deferred compensation. Although we will continue to
invest in our research and development efforts, we expect

12

---

that these expenses will decline beginning in the third quarter of fiscal 2003 as a result of the closure of our Denmark design center in December 2002 and the consolidation of our research
and development activities into our California and United Kingdom locations. This restructuring activity will result in a reduction of our research and development workforce of 57 employees by the end
of the fiscal 2003.

Sales and Marketing.Sales and marketing expenses for the second quarter of fiscal 2003 were $3.9 million and for the
first six months of fiscal 2003 were $7.1 million compared to $4.1 million and $8.4 million for the comparable periods in fiscal 2002. The decrease in sales and marketing expenses
for both periods was primarily due to lower spending on third party software development tools, as we deferred spending on MIPS compatible development tools such as compilers, debuggers, probes and
operating systems. We expect that our sales and marketing expenses will vary from period to period driven primarily by attainment of specified milestones by third party tools providers.

General and Administrative.General and administrative expenses for the second quarter of fiscal 2003 were
$2.0 million and for the first six months of fiscal 2003 were $3.8 million compared to $1.9 million and $3.6 million for the comparable periods in fiscal 2002. The increase
in general and administrative expenses primarily reflects an increase in our directors and officers insurance rates compared to the prior year.

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

In
December 2001, we acquired from Lexra, Inc. certain technology related to our processor architectures and cores, and we recorded a charge of $1.7 million for
purchased in-process research and development expenses upon acquisition of the technology. The amount allocated to in-process research and development was expensed upon
acquisition because technological feasibility had not been established and no future alternative uses for the technology existed. The fair value of the projects was determined by estimating the
present value of the net cash flows we believed would result from the acquired technology.

Restructuring.In the second quarter of fiscal 2003, we closed our Denmark design center to consolidate our research and
development activities in our headquarters in California and in our recently acquired design center in the United Kingdom. In addition, we implemented plans to eliminate 67 regular positions or about
30% of our global workforce by the end of fiscal 2003 across all functions with the objective of reducing our operating expenses. These actions resulted in a restructuring charge in the second quarter
of fiscal 2003 of approximately $7.6 million. The restructuring charge includes approximately $3.3 million of employee severance and related benefits, $1.7 million of facilities
exit costs, primarily related to lease expenses net of anticipated sublease income, $2.5 million in asset write-offs and $174,000 in legal and other costs. These costs and
activities are accounted for under EITF Issue 94-3,Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an
Activity.

13

---

A
summary of restructuring activities follows below (in thousands). The balance of each category presented was zero as of October 1, 2002.

|                           |  | Restructuring
Charges |       | Cash |   | Non-cash |   | Balance
December 31, 2002
|-------------------------- |  | --------------------- | ----- | ---- | - | -------- | - | -------------------------
|Severance                  |  | $                     | 3,329 |      | $ | (1,258   | ) | $                        
|Facilities                 |  |                       | 1,653 |      |   | (32      | ) |                          
|Intangible asset write-off |  |                       | 1,191 |      |   |         |   |                          
|Other asset write-off      |  |                       | 1,287 |      |   |         |   |                          
|Other costs                |  |                       | 174   |      |   | (43      | ) |                          
|                           |  |                       |       |      |   |          |   |                          
|Total                      |  | $                     | 7,634 |      | $ | (1,333   | ) | $                        
|                           |  |                       |       |      |   |          |   |                          

Our
restructuring plans included vacating the facilities at our Denmark design center. The $1.7 million estimated charge for vacating this facility is comprised of our future
obligations of $6.4 million under the facility operating lease expiring on March 2010, partially offset by estimated sublease income of approximately $4.7 million. The sublease
income assumption we have made with respect to the Denmark facility is based on current and expected real estate market conditions in nearby Copenhagen, Denmark, and necessarily entail a high level of
management judgment. These market conditions can fluctuate greatly due to such factors as changes in property occupancy rates and the rental prices charged for comparable properties. As a result, in
future periods, we may be required to record significant additional charges or reverse currently accrued amounts.

As
part of our restructuring plan, we decided to reduce our investment in research and development, and we revised our product plans. We determined that we would not seek to integrate
into our product plans the developed technology we acquired from Lexra, Inc. in December 2001 and recorded an impairment charge of $1.2 million for the remaining value of this
intangible asset.

Other
assets written off include leasehold improvements and computer aided design software related to vacating the Denmark facilities. Other costs are composed primarily of legal fees
and other restructuring costs.

As
of December 31, 2002, the remaining restructuring cost accrual was $3.8 million. The severance and benefit costs associated with 12 of the positions eliminated were paid
as of December 31, 2002. The remaining severance of $2.1 million related to the other 55 positions eliminated is expected to be paid through April 2003. The operating lease
accrual, net of estimated sublease income, is made up of lease payments to be paid through March 2010. Actual future cash requirements may differ materially from the amount accrued at
December 31, 2002, particularly if actual sublease income differs significantly from current estimates.

Other Income (Expense), Net.Other income (expense), net, for the second quarter of fiscal 2003 was a net expense of $916,000
and for the first six months of fiscal 2003 was a net expense of $261,000 compared to net income of $826,000 and $1.9 million for the comparable periods in fiscal 2002. We recorded an
impairment charge of $1.4 million in the second quarter of fiscal 2003 as we wrote off the full value of our investment in Lexra, Inc. This expense was offset in part by other income of
$498,000, primarily from interest income. Additionally, there was a decrease in other income for both periods primarily due to a decline in interest income resulting from lower interest rates and
lower investment balances.

Income Taxes.We recorded a tax provision of $856,000 for the second quarter and first six months of fiscal 2003 compared to
an income tax benefit of $196,000 and $399,000 for the same periods in fiscal 2002. The estimated annual effective tax rate for the second quarter and first six months of fiscal 2003 differs from the
applicable statutory rate primarily due to losses for which no current benefit is available and to foreign income taxes. The estimated annual effective tax benefit for

14

---

the second quarter of fiscal 2002 and the first six months of fiscal 2002 was lower than the applicable statutory rate primarily due to a recovery of previously paid U.S. income tax reduced by
foreign income taxes.

Financial Condition

At December 31, 2002, we had cash and cash equivalents of $86.1 million and total working capital of $83.8 million.

Our
operating activities used net cash of $1.1 million for the six months ended December 31, 2002 compared to net cash used of $9.1 million for the comparable period
in the prior year. During the six-month period ended December 31, 2002, the amount of our net loss was partially offset by non-cash expenses such as depreciation and
amortization and the write-off of the full value of our investment in Lexra, Inc., as well as restructuring costs, and a decrease in accounts receivable and an increase in accruals. The
decrease in accounts receivable was the result of our completing fewer licensing agreements near the end of the second quarter in fiscal 2003. The increase in accruals was primarily due to accrued
restructuring costs, which are expected to be funded by available cash, and could result in cash expenditures through March 2010, the termination of our Denmark facility lease.

During
the six-month period ended December 31, 2001, net cash used by operating activities consisted mainly of our net loss, including a one-time
in-process research and development charge and a restructuring charge, combined with a net increase in other assets and a decrease in accruals, offset by depreciation. The net increase in
other assets pertained to the acquisition of long-term license of computer aided design tools. The decrease in accruals was primarily due to a decrease in our tax provision resulting from
estimated payments and the rate of tax benefit for the first six months of fiscal 2002.

Net
cash used in investing activities was $4.1 million for the six months ended December 31, 2002 compared to $4.3 million for the comparable period in the prior
year. Net cash used in investing activities during the six-month period ended December 31, 2002 included purchases and maturities of short-term investments as well as
purchases of equipment and computer aided design tools used in our development activities and the acquisition of Algorithmics, Ltd., in addition to the purchase of patents and patent
applications and the final payment related to purchases of intangible assets from Lexra, Inc. in December 2001. Net cash used in investing activities for the six-month period ended
December 31, 2001 represents equipment purchases and licensing of computer aided design tools used in our development activities, as well as the purchase of intangible assets from and an equity
interest in Lexra, Inc. Capital expenditures have been, and future expenditures are anticipated to be, primarily for facilities and equipment to support our operations and licensing of computer
aided design tools used in development.

Net
cash provided by financing activities was $265,000 for the six months ended December 31, 2002 compared to net cash provided by financing activities of $842,000 for the
comparable period in the prior year. Net cash provided by financing activities during the six-month period ended December 31, 2002 was attributable to purchases under our employee
stock plans offset in part by the repayment of a loan, which was assumed in connection with the Algorithmics Ltd. acquisition. Net cash provided in the six-month period ended
December 31, 2001 resulted primarily from purchases under our employee stock plans.

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



15

---



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

Factors That May Affect Our Business

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

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

16

---



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:



We may not experience growth in our contract revenue.A significant portion of our total revenues is generated by license
fees paid for access to our technology and engineering service fees, and these contract revenues have represented an increasingly greater percentage of total revenue in recent years. In past quarters,
we have experienced a decline in contract revenue. While we expect that we will continue to grant additional licenses to new licensees and develop new products to license to both new and existing
licensees, we cannot predict whether or when 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.

We depend on design wins to expand our revenue base.In the past, a substantial portion of our total revenues was generated
by royalties from Nintendo and NEC relating to Nintendo 64 video game players and related cartridges. As expected, these royalties have declined substantially and are now insignificant. Our ability to
generate non-Nintendo royalty revenues is uncertain and will depend in large part on whether our processors and related designs are selected by our licensees and their customers for
design, which we refer to as design wins, into a broader range of both digital consumer and business products. Our ability to achieve design wins is subject to several risks and uncertainties,
including:



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

17

---

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



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



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

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

18

---

acceptance or generate meaningful royalties for us. Our dependence on the digital consumer and business products industries involves several risks and uncertainties, including:



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

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



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

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

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

19

---

larger organizations with substantial financial and marketing resources. These internal design groups may develop products that compete with ours.

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

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



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

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

We have recorded long-lived assets, and our results of operations would be adversely affected if their value becomes
impaired.In both the first and second quarters of fiscal 2003 and the second quarter of fiscal 2002, we acquired certain core and developed technologies and
patent and patent applications, and the purchase price of these long-lived assets is being amortized over schedules based on their useful lives. If we complete additional acquisitions in
the future, our purchased intangible assets amortization charge could increase, and we may be required to record substantial amounts of goodwill. As a result of our adoption of Statement of Financial
Accounting Standards No. 142,Goodwill and Other Intangible Assets, we evaluate our long-lived assets, including purchased assets,
for impairment on an annual basis or whenever events or changes in circumstances indicate that the

20

---

carrying amount may not be recoverable from its estimated future cash flows. In the second quarter of fiscal 2003, we recorded an impairment charge of $1.2 million for purchased developed
technology acquired in December 2001. In the future, if we determine that our long-lived assets are impaired, we will have to recognize additional charges for this impairment. While
we do not currently expect to record additional long-lived assets impairment charges, we cannot be sure that we will not be required to do so in the future.

We may incur additional restructuring charges in the future, which could harm our results of operations.In the second
quarter of fiscal 2003, we closed our Denmark design center and reorganized our sales and marketing functions, which resulted in our recording of a restructuring charge of $7.6 million in the
second quarter of fiscal 2003. If, as a result of changes in rental property market conditions, we determine that the facilities restructuring accrual is insufficient, we would be required to take an
additional charge, which would harm our results of operations. We cannot assure you this restructuring of our operations will be sufficient to appropriately align our operating expenses with our
revenue expectations. If we have not sufficiently reduced operating expenses, we may be required to engage in additional restructuring activities, which could result in additional restructuring
charges. Further, recent accounting pronouncements may affect the timing of recording any future restructuring costs as well as the amounts recorded. These restructuring charges could harm our results
of operations.

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

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

21

---

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES



22

---





PART IIOTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



For

Against

Withheld

Non-VoteAnthony B. Holbrook

10,805,711



2,466,613






For

Against

Withheld

Non-VoteJohn E. Bourgoin

18,579,463



2,903,593

Kenneth L. Coleman

18,276,174



3,206,882






For

Against

Withheld

Non-Vote33,907,579

822,403

25,398




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K





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

23

---



SIGNATURES

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

| |  | MIPS Technologies, Inc.
a Delaware corporation
| |  | ----------------------------------------------
| |  | By:                                           
| |  |                                               

Dated:
February 12, 2003

24

---



FORM 10-Q CERTIFICATION

I,
John E. Bourgoin, certify that:



|Date: February 12, 2003 |  | By: |  | /s/ JOHN E. BOURGOINJohn E. Bourgoin
President and Chief Executive Officer,
MIPS Technologies, Inc.
|----------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------

25

---

I,
Kevin C. Eichler, certify that:



|Date: February 12, 2003 |  | By: |  | /s/ KEVIN C. EICHLERKevin C. Eichler
Vice President and Chief Financial Officer,
MIPS Technologies, Inc.
|----------------------- |  | --- |  | --------------------------------------------------------------------------------------------------------

26

---

QuickLinks