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

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2004

OR

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

Commission file number 000-24487

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

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

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

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

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

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

As
of October 29, 2004, the number of outstanding shares of the Registrants common
stock, $.001 par value, was 41,576,273.

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|                                                                                               | 
|---------------------------------------------------------------------------------------------- | 
|PART I - FINANCIAL INFORMATION                                                                 | 
|                                                                                               | 
|Item 1.  Financial Statements (Unaudited):                                                     | 
|Condensed Consolidated Balance Sheets                                                          | 
|Condensed Consolidated Statements of Operations                                                | 
|Condensed Consolidated Statements of Cash Flows                                                | 
|Notes to Condensed Consolidated Financial Statements                                           | 
|                                                                                               | 
|Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition | 
|                                                                                               | 
|                                                                                               | 
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                            | 
|                                                                                               | 
|Item 4.  Controls and Procedures                                                               | 
|                                                                                               | 
|PART II - OTHER INFORMATION                                                                   
|                                                                                               | 
|Item 6.  Exhibits                                                                              | 
|                                                                                               | 
|Signatures                                                                                     | 

2

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# PART I - FINANCIAL
INFORMATION

ITEM 1.    FINANCIAL
STATEMENTS

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

|                                          | September 30,
2004 | June 30,
2004
|----------------------------------------- | ------------------ | -------------
|
|ASSETS                                    |                    |              
|Current assets:                           |                    |              
|Cash and cash equivalents                 |                    |              
|Short-term investments                    |                    |              
|Accounts receivable                       |                    |              
|Prepaid expenses and other current assets |                    |              
|                                          |                    |              
|Total current assets                      |                    |              
|Equipment and furniture, net              |                    |              
|Intangible assets, net                    |                    |              
|Other assets                              |                    |              
|                                          |                    |              
|                                          |                    |              
|                                          |                    |              
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                    |              
|Current liabilities:                      |                    |              
|Accounts payable                          |                    |              
|Accrued liabilities                       |                    |              
|Deferred revenue                          |                    |              
|                                          |                    |              
|Total current liabilities                 |                    |              
|Long-term liabilities                     |                    |              
|                                          |                    |              
|                                          |                    |              
|Stockholders' equity:                     |                    |              
|Common stock                              |                    |              
|Additional paid-in capital                |                    |              
|Accumulated other comprehensive income    |                    |              
|Deferred compensation                     |                    |              
|Accumulated deficit                       |                    |              
|                                          |                    |              
|Total stockholders' equity                |                    |              
|                                          |                    |              
|                                          |                    |              
|                                          |                    |              

See accompanying notes.

3

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

|                                                             | Three Months Ended
September 30,
|------------------------------------------------------------ | --------------------------------
|
|Revenue:                                                     |                                 
|Royalties                                                    |                                 
|Contract revenue                                             |                                 
|                                                             |                                 
|Total revenue                                                |                                 
|Costs and expenses:                                          |                                 
|Research and development                                     |                                 
|Sales and marketing                                          |                                 
|General and administrative                                   |                                 
|Restructuring                                                |                                 
|                                                             |                                 
|Total costs and expenses                                     |                                 
|                                                             |                                 
|Operating income (loss)                                      |                                 
|Other income, net                                            |                                 
|                                                             |                                 
|Income (loss) before income taxes                            |                                 
|Provision for income taxes                                   |                                 
|                                                             |                                 
|Net income (loss)                                            |                                 
|                                                             |                                 
|Net income (loss) per basic share                            |                                 
|                                                             |                                 
|Net income (loss) per diluted share                          |                                 
|                                                             |                                 
|Shares used in computing net income (loss) per basic share   |                                 
|Shares used in computing net income (loss) per diluted share |                                 

See accompanying notes.

4

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

|                                                                                    | Three Months Ended
September 30,
|----------------------------------------------------------------------------------- | --------------------------------
|
|Operating activities:                                                               |                                 
|Net income (loss)                                                                   |                                 
|Adjustments to reconcile net income (loss) to net cash used in operating activities |                                 
|Depreciation                                                                        |                                 
|Amortization of intangibles                                                         |                                 
|Other non-cash charges                                                              |                                 
|Changes in operating assets and liabilities:                                        |                                 
|Accounts receivable                                                                 |                                 
|Prepaid expenses                                                                    |                                 
|Other assets                                                                        |                                 
|Accounts payable                                                                    |                                 
|Accrued compensation                                                                |                                 
|Other current accrued liabilities                                                   |                                 
|Income tax payable                                                                  |                                 
|Deferred revenue                                                                    |                                 
|Long-term liabilities                                                               |                                 
|                                                                                    |                                 
|Net cash provided by (used in) operating activities                                 |                                 
|Investing activities:                                                               |                                 
|Purchases of short-term investments                                                 |                                 
|Maturities of short-term investments                                                |                                 
|Capital expenditures                                                                |                                 
|                                                                                    |                                 
|Net cash used in investing activities                                               |                                 
|Financing activities:                                                               |                                 
|Net proceeds from issuance of common stock                                          |                                 
|                                                                                    |                                 
|Net cash provided by financing activities                                           |                                 
|Effect of exchange rate on cash and cash equivalents                                |                                 
|                                                                                    |                                 
|Net decrease in cash and cash equivalents                                           |                                 
|Cash and cash equivalents, beginning of period                                      |                                 
|                                                                                    |                                 
|Cash and cash equivalents, end of period                                            |                                 
|                                                                                    |                                 

See accompanying notes.

5

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MIPS TECHNOLOGIES, INC.

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Note 1.     Description of
Business and Basis of Presentation

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

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

The
condensed consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission (SEC)
applicable to interim financial information. Certain information and footnote disclosures
included in 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, 2004 has been derived from audited financial
statements, but does not include all disclosures required by generally accepted accounting
principles. However, we believe that the disclosures are adequate to make the information
presented not misleading. The unaudited condensed consolidated financial statements
included in this Form 10-Q should be read in conjunction with the audited consolidated
financial statements and related notes for the fiscal year ended June 30, 2004, included
in our 2004 Annual Report on Form 10-K.

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

Stock-Based
Compensation. We have adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-based Compensation, as amended by SFAS No. 148  Accounting for Stock-Based
Compensation  Transition and Disclosure. As allowed by SFAS No. 123, we account for
stock-based employee compensation arrangements under the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). As a result, no expense was recognized for options to purchase our common stock
that were granted with an exercise price equal to fair market value at the date of grants
and no expense was recognized in connection with purchases under our employee stock
purchase plan. For restricted common stock issued at discounted prices, we recognize
compensation expense over the vesting period for the difference between the exercise or
purchase price and the fair market value on the measurement date. Total compensation
expense recognized in our financial statements for stock-based awards under APB 25 was
$186,000 for the three-month period ended September 30, 2004 compared to $160,000 for the
three-month period ended September 30, 2003.

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Pro
forma information regarding net income (loss) and net income (loss) per share has been
determined as if we had accounted for our employee stock options and employee stock
purchase plans under the fair value method prescribed by SFAS No. 123. For purposes of pro
forma disclosures, the estimated fair value of the stock awards is amortized to expense
over the vesting periods of such awards.

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

|                                                               | Three Months Ended
September 30,
|-------------------------------------------------------------- | --------------------------------
|
|Net income (loss), as reported                                 |                                 
|Add:  Stock-based  employee compensation expense included in   |                                 
|reported net income (loss), net of related tax effects         |                                 
|Deduct: Total stock-based employee compensation expense        |                                 
|determined under fair value method, net of tax related effects |                                 
|                                                               |                                 
|Pro forma net income  (loss)                                   |                                 
|                                                               |                                 
|Basic net income (loss) per share:                             |                                 
|As reported                                                    |                                 
|                                                               |                                 
|Pro forma                                                      |                                 
|                                                               |                                 
|Diluted net income (loss) per share:                           |                                 
|As reported                                                    |                                 
|                                                               |                                 
|Pro forma                                                      |                                 
|                                                               |                                 

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

On
March 31, 2004, the Financial Accounting Standards Board (FASB) issued an Exposure Draft
(ED), Share-Based Payment  An Amendment of FASB Statements No. 123 and
95. The proposed Statement addresses the accounting for transactions in which an
enterprise receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the enterprises
equity instruments or that may be settled by the issuance of such equity instruments. The
proposed Statement would eliminate the ability to account for share-based compensation
transactions using APB 25, and generally would require instead that such transactions be
accounted for using a fair-value based method. As proposed, companies would be required to
recognize an expense for compensation cost related to share-based payment arrangements
including stock options and employee stock purchase plans. As proposed, the new rules
would be applied on a modified prospective basis as defined in the ED, and would be
effective for us beginning July 1, 2005. We are currently evaluating option valuation
methodologies and assumptions in light of the evolving accounting standards related to
employee stock options. Current estimates of option values using the Black-Scholes method
(as shown above) may not be indicative of results from valuation methodologies ultimately
adopted in the final rules.

7

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Note 2.   Computation of
Earnings Per Share

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

|                                                                                                           | Three Months Ended
September 30,
|---------------------------------------------------------------------------------------------------------- | --------------------------------
|
|Numerator:                                                                                                 |                                 
|Net income (loss)                                                                                          |                                 
|                                                                                                           |                                 
|Denominator:                                                                                               |                                 
|Weighted-average shares of common stock outstanding                                                        |                                 
|Less:  Weighted-average shares subject to repurchase                                                       |                                 
|                                                                                                           |                                 
|Shares used in computing net income (loss) per basic share                                                 |                                 
|                                                                                                           |                                 
|Effect of dilutive  securities-employee stock options and shares subject to repurchase                     |                                 
|Shares used in computing net income (loss) per diluted share                                               |                                 
|                                                                                                           |                                 
|Net income (loss) per basic share                                                                          |                                 
|Net income (loss) per diluted share                                                                        |                                 
|Potentially  dilutive securities excluded from net income per diluted share because they are anti-dilutive |                                 

Note 3.   Comprehensive
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 comprehensive income for the first three months of fiscal 2004 was
$3.1 million and total comprehensive loss for the comparable period in the prior year was
$5.8 million.

Note 4.   Purchased
Intangible Assets

All
of our purchased intangible assets, except goodwill, are subject to amortization.
Purchased intangible assets subject to amortization consisted of the following as of
September 30, 2004 and June 30, 2004 (in thousands):

|                            | September 30, 2004 | June 30, 2004
|--------------------------- | ------------------ | -------------
|
|Developed technology        |                    |              
|Core/patent technology      |                    |              
|                            |                    |              
|Purchased intangible assets |                    |              
|                            |                    |              

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

8

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The
estimated future amortization expense of purchased intangible assets as of September 30,
2004 is approximately $412,000, $549,000, $549,000, $549,000 and $341,000 for the
remaining nine months of fiscal 2005 and for fiscal years 2006, 2007, 2008 and 2009,
respectively, and approximately $387,000 for years following fiscal 2009. Amortization
expense for purchased intangible assets was $140,000 in the first quarter of fiscal 2005
and $148,000 in the first quarter of fiscal 2004.

Note 5.   Restructuring
Charge

Restructuring
charges consist of multiple actions taken in fiscal 2003.

October 2002
Restructuring Activities

In
the second quarter of fiscal 2003, we closed our Denmark design center to consolidate our
research and development activities in our headquarters in California and in our then
recently acquired design center in the United Kingdom. We implemented plans to eliminate
67 regular positions or about 30% of our then global workforce across all functions with
the objective of reducing our operating expenses. These actions resulted in a
restructuring charge in fiscal 2003 of approximately $7.7 million. The restructuring
charge included approximately $3.2 million of employee severance and related benefits,
$1.7 million of facilities exit costs, primarily related to lease expenses net of
anticipated sublease income, $2.5 million in asset write-offs and $299,000 in legal and
other costs. The severance and facility related charges were accounted for under EITF
Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and other
Costs to Exit an Activity. The charges associated with the write-off of assets were
accounted for under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. All employees had been terminated as of June 30, 2003.

A
summary of the October 2002 restructuring activities as of September 30, 2004 follows
below (in thousands):

|                                                | Severance | Facilities | Intangible
asset write-off | Other asset write-off | Other costs | Total
|----------------------------------------------- | --------- | ---------- | -------------------------- | --------------------- | ----------- | -----
|Initial charge in second quarter of fiscal 2003 |           |            | $                          | 2,329                 |             | $    
|Adjustments                                     |           |            |                            | (85                   | )           |      
|Cash charges                                    |           |            |                            | (3,338                | )           |      
|Non-cash charges                                |           |            |                            | 94                    |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2003                        |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|Non-cash charges                                |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|Balance at June 30, 2004                        |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      
|Additional charges                              |           |            |                            |                      |             |      
|Cash payments                                   |           |            |                            |                      |             |      
|Non-cash charges                                |           |            |                            |                      |             |      
|                                                |           |            |                            |                       |             |      
|Balance at September 30, 2004                   |           |            | $                          |                      |             | $    
|                                                |           |            |                            |                       |             |      

9

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The
$1.7 million estimated charge for vacating our Denmark design center consisted of our
future obligations of $6.4 million under the facility operating lease expiring in March
2010, partially offset by estimated sublease income of approximately $4.7 million. We
engaged two external local real estate professionals to provide an assessment of
comparable commercial properties in the Copenhagen, Denmark real estate market. Based on
the input from these real estate professionals, we estimated that a period of 15 months
would elapse before we would be able to sublease the facility, entailing a cost of
facilities of $1.2 million during this period. We also estimated that we would generate
sublease income of $4.7 million over the remaining 7.25 years of the term of the lease
with total contractual obligation under the facilities lease of $5.2 million. During the
first quarter of fiscal 2004, we revised our estimate of sublease income based upon
updated information from real estate professionals on market conditions in Denmark,
received subsequent to the first quarter of fiscal 2004. We estimated that an additional 18
months from March 2004 would elapse before we might be able to sublease the facility, and
that the amount of sublease income during the remainder of the lease term would be $3.4
million. These revised estimates resulted in a charge to restructuring during the first
quarter of fiscal 2004 of $1.4 million. On September 28, 2004, we entered into an
agreement with the landlord and a new tenant to terminate our long-term lease obligation
in return for a lump sum payment of approximately $1.9 million. This resulted in an
additional charge to restructuring in the first quarter of fiscal 2005 of $277,000.

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

Other
assets written off in fiscal 2003 as a part of the October 2002 restructuring action
included leasehold improvements and computer aided design software related to the Denmark
facilities. Other costs are composed primarily of legal fees and other restructuring
costs. The asset impairments that resulted from these exit activities were accounted for
under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

As
of September 30, 2004, the remaining restructuring cost accrual was $76,000, which
consists of an accrual for broker commissions and an estimate for unpaid utilities on the
leased property through September 28, 2004.

May 2003 Restructuring
Activities

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

Note 6.   Interest Income

Interest
income reported under Other income, net was $289,000 for the three-month period ended
September 30, 2004 and $201,000 for the three-month period ended September 30, 2003.

10

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Note 7.   Contingencies

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

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

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

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

11

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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 those that address 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 Factors That May Affect Our Business, and other risks
affecting our business. We undertake no obligation to update any forward-looking
statements included in this discussion.

Overview

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

We
entered fiscal 2005 facing the challenge of maintaining our growth and profitability,
while establishing new initiatives and executing on our next set of product development
offerings. We have made significant progress during the first quarter of fiscal 2005. The
demand for our recently introduced high performance MIPS32 24K core family contributed
significantly to the 40% year over year revenue growth in the first fiscal quarter of
2005. The completion of nine new license agreements during the quarter, including five
agreements for the 24K cores provided the foundation for the 48% growth in contract
revenue. We continue to expand our customer base with the addition of three new licensees
along with achieving repeat business with six existing customers licensing additional
cores from us. The 32% increase in royalties in the first quarter was due to royalties
from license agreements signed since our initial public offering in June 1998. Royalties
from these agreements contributed to 63% of our total royalties in the quarter, up from
38% in the same quarter of fiscal 2004. We achieved increased profitability for the fourth
consecutive quarter. In late September, we completed the negotiation for the termination
of the long-term facilities lease obligation for our former Denmark design center.

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

Results of Operations

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

We
generate royalties from the sale by our licensees of products incorporating our
technology. Royalty revenue is recognized in the quarter in which a report is received
from a licensee detailing the shipments of products incorporating our intellectual
property, which is in the quarter following the sale of the licensees product to its
customer. Royalties are calculated either as a percentage of the revenue received by the
seller on sales of such products or on a per unit basis. Our ability to diversify our
revenue base will depend primarily on the number and variety of design wins we obtain from
digital consumer product and business equipment manufacturers, and consumer acceptance of
products that incorporate our technology. We generally do not have a direct contractual
relationship with digital consumer product manufacturers, and the royalty reports
submitted by our licensees generally do not disclose which consumer products include our
technology. As a result, it is difficult for us to identify or predict the extent to which
our future revenue will depend upon a particular digital consumer product or product
manufacturer.

12

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We
generate contract revenue from technology license fees for currently available technology
and engineering service fees for technology under development. Each of these types of
contracts is a nonexclusive license for the underlying intellectual property. While we may
be required to perform certain services to render the intellectual property suitable for
license under an engineering service contract, we continue to own the intellectual
property that we develop. The amount of the license fee under an engineering service
agreement is primarily a function of our determination of the underlying value of the
technology rather than our cost of completing the development of the technology required
by the agreement. We also have the right to license to other licensees the intellectual
property developed under engineering service agreements. Consistent with Staff Accounting
Bulletin (referred to as SAB) No. 104 Revenue Recognition, technology license fees are recorded as revenue
upon the execution of the license agreement when there is persuasive evidence of an
arrangement, fees are fixed and determinable, delivery has occurred and collectibility is
probable. Technology license fees vary based on, among other things, whether a particular
technology is licensed for a single application or for multiple or unlimited applications,
and whether the license granted covers a particular design or a broader architecture.
Engineering service fees are related to engineering services contracts, which are
performed on a best efforts basis and for which we receive periodic milestone payments.
Engineering service fees are recognized as revenue over the estimated development period
using a cost-based percentage of completion method. In most instances, the technology
under development, including under engineering services contracts, can be licensed to
multiple customers.

Our
revenue in the three-month periods ended September 30, 2004 and September 30, 2003 was as
follows (in thousands):

|                            | Three Months Ended September 30,
|--------------------------- | --------------------------------
|
|Revenue                     |                                 
|Royalties                   |                                 
|Percentage of Total Revenue |                                 
|Contract Revenue            |                                 
|Percentage of Total Revenue |                                 
|                            |                                 
|Total Revenue               |                                 
|                            |                                 

Total
revenue increased 40% for the first quarter of fiscal 2005 over the comparable period in
fiscal 2004 due to an increase in both royalties and contract revenues. The increase in
royalties in the first quarter was due primarily to an increase of $2.4 million in
royalties from license agreements signed since our initial public offering in June 1998 as
customers under these agreements are shipping more products incorporating our technology.
This increase was offset in part by a decrease of $700,000 in royalties from legacy
agreements. Contract revenues increased 48% primarily due to an increase of $3.4 million
in fees generated from new and existing license agreements for developed technology offset
in part by a decrease of $759,000 in fees generated from engineering services contracts
for technology under development. The increase in fees for developed technology was
primarily due to the completion of nine new license agreements including five new licenses
for the recently introduced MIPS32 24K core family. Engineering service fees decreased
because we had fewer agreements in place for the development of products than in the prior
period.

Cost
and Expenses.  Our cost and expenses for the three-month periods ended September 30, 2004
and September 20, 2003 was as follows (in thousands):

|                           | Three Months Ended September 30,
|-------------------------- | --------------------------------
|
|Cost and Expenses          |                                 
|Research and Development   |                                 
|Sales and Marketing        |                                 
|General and Administrative |                                 

13

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

The
decrease in research and development expenses for the first quarter of fiscal 2005 over
the comparable period in fiscal 2004 was primarily the result of a reduction in cost of
approximately $2.7 million related to the termination of our custom core development team
in September 2003 including a decrease in salary and benefits expense of $1.0 million and
a decrease in computer aided design tool amortization expense of $1.7 million. In
addition, depreciation expense declined $499,000. These decreases were offset in part by
an increase in bonus and profit sharing expense of $303,000. We expect our research and
development expenses to increase during the remainder of fiscal 2005 as we invest in
additional projects to support future growth.

Sales
and Marketing. Sales and marketing expenses for the first quarter of fiscal 2005 increased
over the comparable period in fiscal 2004. The increase in sales and marketing expenses
was primarily due to an increase in commission and bonus expense of $272,000 due to an
increase in contract revenue and the reinstatement of our bonus and profit sharing plans
and an increase of $65,000 in marketing communications. This increase was offset in part
by a decrease in spending of $175,000 on third party software development tools due to
higher requirement for such tools in the first quarter of fiscal 2004. We expect that our
sales and marketing expenses will increase during the remainder of fiscal 2005 as we focus
additional resources on expanding our market presence.

General
and Administrative.  General and administrative expenses for the first quarter of fiscal
2005 increased over the comparable period in fiscal 2004. The increase in general and
administrative expenses was primarily due to an increase in legal expense of $240,000 as a
result of increased legal and patent activity, an increase in bonus expense of $193,000
due to the reinstatement of our bonus and profit sharing plans, and an increase in other
expense due to the reversal of a bad debt allowance of $177,000 in September 2003 as we
were able to collect an outstanding receivable that had previously been determined to be
uncollectible. We expect that our general and administrative expenses will remain
relatively constant over the next few quarters.

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

Other
Income, Net.  Other income, net, for the first quarter of fiscal 2005 was $245,000 compared
to $208,000 for the comparable period in fiscal 2004. The increase in other income was
primarily due to an increase in interest income.

Income
Taxes.  We recorded an income tax provision of $880,000 for the first quarter of fiscal
2005. The estimated annual effective tax rate of 22% in the first quarter of fiscal 2005
is lower than the applicable statutory rate primarily due to the availability of foreign
tax credit and general business tax credit carryovers from prior years. We recorded an
income tax provision of $567,000 for the first quarter of fiscal 2004 consisting of
foreign income taxes and foreign withholding taxes. The estimated annual effective tax
rate for the first quarter of fiscal 2004 differs from the expected benefit at the
applicable statutory rate due to our inability to benefit our current operating losses.

A
certain transaction reported in our federal income tax return for fiscal year 2002 is
currently under examination by the Internal Revenue Service. No adjustment as been
proposed at this time. We believe that adequate amounts have been provided for any
adjustment that may ultimately result from this examination.

14

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Financial Condition

At
September 30, 2004, we had cash, cash equivalents and short-term investments of $94.1
million and total working capital of $86.6 million. Our principal requirements for cash
are to fund working capital needs, and, to a lesser extent, capital expenditures for
equipment purchases, licensing of computer aided design tools used in our development
activities and acquisition of technologies and patents. The following table summarizes
selected items (in thousands) from our statement of cash flows for the three months ended
September 30, 2004 and 2003. For complete statements of cash flows for those periods, see
the financial statements in Item 1.

|                                                     | Three Months EndedSeptember 30,
|---------------------------------------------------- | -------------------------------
|
|Net cash provided by (used in) operating activities  |                                
|Net income (loss)                                    |                                
|Depreciation                                         |                                
|Amortization of intangibles                          |                                
|Accounts receivable                                  |                                
|Prepaid expenses                                     |                                
|Other assets                                         |                                
|Other current accrued liabilities                    |                                
|Income tax payable                                   |                                
|Accrued compensation                                 |                                
|                                                     |                                
|Net cash used in investing activities                |                                
|Net maturities (purchases) of short-term investments |                                
|Capital expenditures                                 |                                
|                                                     |                                
|Net cash provided by financing activities            |                                
|Net proceeds from issuance of common stock           |                                
|                                                     |                                
|Net decrease in cash and cash equivalents            |                                

For
the three-month period ended September 30, 2004, our operating activities provided net
cash of $664,000 primarily reflecting net income, depreciation and amortization of
intangibles. In addition, cash was generated by a decrease in prepaid expenses of $255,000
due to amortization of our business insurance policy, $291,000 related to amortization of
our computer aided design time-based licenses and an increase of $880,000 in income taxes
payable due to our tax provision for the period, partially offset by foreign withholding
taxes on accounts receivable collections. This was partially offset by an increase in
accounts receivable due to new balances during the quarter and decreases in other current
accrued liabilities from payments under our restructuring plan for our Denmark facility
lease termination of $1.9 million and accrued compensation due to $1.5 million in
executive bonus payments.

During
the three months ended September 30, 2003, net cash used by operating activities of $2.8
million consisted mainly of our net loss of $5.8 million, offset in part by non-cash
charges including depreciation and amortization along with a decrease in accounts
receivable due to collection of a large receivable outstanding at June 30, 2003 offset in
part by receivables from new agreements during the quarter. In addition, prepaid expenses
and other assets decreased due to the receipt of an income tax receivable of $630,000,
annual amortization of $330,000 related to our prepaid business insurance, and $1.7
million in amortization of our time-based computer-aided design tool licenses. These were
partially offset by decreases in accrued liabilities primarily due to payment of our
annual business insurance policy of $1.3 million, lower employee compensation accruals due
to fewer employees at the end of the quarter, and payment of accrued restructuring costs
of $1.8 million due to the termination of employees during the quarter, partially offset
by an additional accrual of $1.4 million related to the closure of our Denmark facility.

Net
cash used in investing activities was $5.0 million for the three months ended September
30, 2004 compared to $7.4 million for the comparable period in the prior year. Net cash
used in investing activities during the three-month period ended September 30, 2004 and
September 30, 2003 included purchases of short-term investments and purchases of equipment
and computer-aided design tools used in our development activities.

15

---

Net
cash provided by financing activities was $74,000 for the three months ended September 30,
2004 compared to net cash provided of $15,000 for the comparable period in the prior year.
Net cash provided by financing activities during the three-month period ended September
30, 2004 and September 30, 2003 was attributable to purchases under our employee stock
plans.

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

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

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

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

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

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

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

Contractual  Obligations

Our
contractual obligations as of September 30, 2004 were as follows:

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

| | (1) | We
lease office facilities under noncancelable operating leases that expire
               through 2010. In connection with the lease, we have entered into a letter
of                credit as a security deposit with a financial institution for $264,000,
which is                guaranteed by a time-based certificate of deposit. Operating
lease obligations                decreased $4.7 million compared to June 30, 2004
primarily due to the                termination of our long-term lease obligation for the
Denmark design center.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Outstanding
purchase orders for ongoing operations. Payments of these                obligations are
subject to the provision of services or products.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Long-term
liability to employees under a deferred compensation plan.                Distributions
under this plan are elected by the employees. Other long-term                liabilities
increased $529,000 compared to June 30, 2004 primarily due to the                increase
in employee contributions to the deferred compensation plan.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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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.

Our
critical accounting policies relate to revenue recognition, goodwill and purchased
intangible assets, impairment of long-lived assets, income taxes and accrued facilities
restructuring charges. For a discussion of these critical accounting policies, please see
Critical Accounting Policies and Estimates in Item 7 of our Annual Report on
Form 10-K for the year ended June 30, 2004.

Factors That May Affect
Our Business

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

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

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

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

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

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

| |  |  | the
demand for products that incorporate our technology;
| | - |  | --------------------------------------------------------

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

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

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

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

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

17

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The
success of our business depends on maintaining and growing our contract revenue.  Contract
revenue consists of technology license fees paid for access to our developed technology
and engineering service fees related to technology under development. Our ability to
secure the licenses from which our contract revenues are derived depends on our customers,
including semiconductor companies, digital consumer and business product manufacturers,
adopting our technology and using it in the products they sell. Our contract revenue
declined in fiscal 2002 and fiscal 2003 and increased by 5% in fiscal 2004. While we
expect that we will continue to grant additional licenses to new licensees and develop new
products to license to both new and existing licensees, we cannot predict whether we can
maintain our current contract revenue levels or if contract revenue will grow. Our
licensees are not obligated to license new or future generations of our products, so past
contract revenue may not be indicative of the amount of such revenue in any future period.
If we cannot maintain or grow our contract revenue or if our customers do not adopt our
technology and obtain corresponding licenses, our results of operations will be adversely
affected.

We
depend on royalties from the sale of products incorporating our technology, and we have
limited visibility as to the timing and amount of such sales.  Our receipt of royalties
from our licenses depends on our customers incorporating our technology into their
products, their bringing these products to market, and the success of these products. In
the case of our semiconductor customers, we are further dependent upon the sale of
products by their customers. 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.

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

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

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

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

18

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

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

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

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

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

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

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

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

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

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

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

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

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

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

19

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

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

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

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

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

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

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

Our
intellectual property may be misappropriated and we may be unable to obtain or enforce
intellectual property rights.  Policing the unauthorized use of our intellectual property
is difficult, and we cannot be certain that the steps we have taken will prevent the
misappropriation or unauthorized use of our technologies, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in the United
States. As part of our business strategy, we license our technology in multiple
geographies including in countries whose laws do not provide as much protection for our
intellectual property as the laws of the United States and where we may not be able to
enforce our rights. In addition, we cannot be certain that we will be able to prevent
other parties from designing and marketing unauthorized MIPS-Based products or that others
will not independently develop or otherwise acquire the same or substantially equivalent
technologies as ours. Moreover, cross licensing arrangements, in which we license certain
of our patents but do not generally transfer know-how or other proprietary information,
may facilitate the ability of cross-licensees, either alone or in conjunction with others,
to develop competitive products and designs. We also cannot assure you that any of our
patent applications to protect our intellectual property will be approved. In addition,
effective trade secret protection may be unavailable or limited in certain countries. If
we are unable to protect or enforce our intellectual property rights, our technology may
be used without the payment of license fees and royalties, which could weaken our
competitive position, reduce our operating results and increase the likelihood of costly
litigation.

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

20

---

We
have recorded long-lived assets, and our results of operations would be adversely affected
if their value becomes impaired.  In both the first and second quarters of fiscal 2003 and
the second quarter of fiscal 2002, we acquired certain core and developed technologies and
patent and patent applications, and the purchase price of these long-lived assets is being
amortized over schedules based on their useful lives. If we complete additional
acquisitions in the future, our purchased intangible assets amortization charge could
increase, and we may be required to record substantial amounts of goodwill. We evaluate
our long-lived assets, including purchased assets, for impairment on an annual basis or
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable from its estimated future cash flows. In the second quarter of fiscal 2003, we
recorded an impairment charge of $1.2 million for purchased developed technology acquired
in December 2001. We recorded additional research and development expense of $1.7 million
in fiscal 2004 and $696,000 in fiscal 2003 related to the accelerated amortization and
depreciation of certain computer aided design tool and software assets whose estimated
useful lives were reduced because of the restructuring actions announced in the fourth
quarter of fiscal 2003.

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

ITEM 3.    QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 4.    CONTROLS AND
PROCEDURES

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

| | (b.) | During
the quarter ended September 30, 2004, there were no changes in our
               internal control over financial reporting that have materially affected or
are                reasonably likely to materially affect our internal control over
financial                reporting.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

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# PART II  OTHER
INFORMATION

ITEM 6.    EXHIBITS

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

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

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

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

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

---

| | *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 1, 2, 3, 4, AND 5 ARE NOT
APPLICABLE AND HAVE BEEN OMITTED.

22

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SIGNATURES

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

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

Dated:  November 8, 2004

23

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