Document:

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                              CONFIDENTIAL MATERIAL
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                     THE SECURITIES AND EXCHANGE COMMISSION

                                                                    EXHIBIT 10.3

                             CONFIDENTIAL TREATMENT
                        PDF SOLUTIONS, INC. HAS REQUESTED
                        THAT THE MARKED PORTIONS OF THIS
                        DOCUMENT BE ACCORDED CONFIDENTIAL
                      TREATMENT PURSUANT TO RULE 406 UNDER
                     THE SECURITIES ACT OF 1933, AS AMENDED.

                                                              PROJECT: TOSHIBA -
                                                          **********************

                     YIELD IMPROVEMENT CONSULTING AGREEMENT

        This Yield Improvement Consulting Agreement dated as of *************
(this "AGREEMENT") is entered into by and between Toshiba Corporation, a
corporation organized under the laws of Japan ("TOSHIBA") having its principal
place of business at 1-1 Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan, and
PDF Solutions, Inc., a corporation organized under the laws of California
("PDF") having its principal place of business at 333 West San Carlos Street,
Suite 700, San Jose, California, U.S.A.

RECITALS

               A. PDF Solutions possesses technology and expertise useful in
discovering, analyzing, and fixing problems in the design and manufacturing
processes that cause low yields of useable integrated circuits.

               B. Toshiba desires to engage PDF Solutions and receive a license
to certain technology useful to analyze its internal integrated circuit
manufacturing process, identify problems therewith, and recommend solutions
thereto, by way of methodology or otherwise, upon the terms and conditions
contained herein.

               C. PDF Solutions desires to be so engaged upon the terms and
conditions contained herein.

DEFINITIONS

"Analysis" refers to all interpretations, recommendations, extractions,
statistical models or other yield and performance models developed by PDF
Solutions and derived in whole or in part from Toshiba's Raw Data; provided,
however, that Analysis does not include any information sufficiently detailed
that Raw Data could be feasibly re-constructed.

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"Characterization Vehicle" or "CV" refers to the parameterized layout structures
or circuit elements, specific implementations of said structures or circuit
elements either in computer format or layout format (for example, GDS-II files),
and images of said structures or circuit elements, historically or hereafter
created or customized by PDF Solutions for the purposes of creating a test
vehicle used to characterize any given manufacturing process. Manufacturing
Designs are usually referenced in the process of generating CVs for the purposes
of optimizing or tuning the vehicle to the targeted designs and process. The CV
is used to create a Mask Set which is used by the fabrication facility to
generate test wafers.

"Foundry" refers to any facility Toshiba owns or operates to manufacture
products and any third party foundry with which Toshiba has a relationship that
manufactures products for Toshiba.

"Manufacturing Designs" refers to all non-public information relating to
Toshiba's manufacturing processes and integrated circuit designs (structures and
elements) used in connection with the CV to generate Raw Data.

"Mask Set" refers to translucent glass plates used as a light filter to transfer
designs onto a wafer.

"Proprietary Rights" shall mean all intellectual property rights including, but
not limited to, patents, patent applications, copyrights, copyright
registrations, moral rights, mask work rights, rights of authorship, industrial
design rights, trademarks, tradenames, know-how and trade secrets, irrespective
of whether such rights arise under U.S. or international intellectual property,
unfair competition or trade secret laws.

"PDF Technology" refers to all historically, or hereafter developed
methodologies, techniques, software, designs, CVs, problem solving processes and
practices utilized by PDF Solutions, and any modifications, compilations or
works derivative of the foregoing, excluding know-how, methodologies, techniques
or practices that are commonly known or that Toshiba independently has the right
to use. PDF Technology also refers to the CV layout and the Design of
Experiments used in creating the CV layout.

"Raw Data" shall mean the data generated by PDF Solutions using the CV in
conjunction with Toshiba's Manufacturing Design.

                                    AGREEMENT

               NOW, THEREFORE, in consideration of the mutual promises herein
contained, the above recitals and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Toshiba and PDF
Solutions, intending to be legally bound, hereby agree as follows:

1.      YIELD IMPROVEMENT SERVICES.

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        1.1 PROVISION OF SERVICES. During the term of this Agreement, PDF will
provide to Toshiba development work and services with respect to integrated
circuit yield management issues. The services and the Deliverables to be
delivered as a result thereof (the "PROJECT") are described in detail on a
statement of work (the "STATEMENT OF WORK") attached hereto as Exhibit A. The
Statement of Work shall be governed by the terms of this Agreement, and
specifies:

               (a)  Deliverables. The specific deliverables (the "DELIVERABLES")
                    to be delivered under the Project and relevant milestones
                    for delivering the Deliverables;

               (b)  Team Structure. The team members from PDF and Toshiba who
                    are to work on the Project and the expected time
                    contributions for each such member;

               (c)  Tools. The required data, tools, hardware, software,
                    materials, access to personnel and facilities, and other
                    materials required for effectively completing the Project;

               (d)  Location. The geographic location where each component of
                    the Project will be completed;

               (e)  Fees and Expenses. The amount and structure of PDF's Fees
                    (as defined below) payable upon delivery of the Deliverables
                    and Expenses (as defined below).

        1.2 TOSHIBA INTELLECTUAL PROPERTY. Toshiba will disclose to PDF on a
timely basis such Proprietary Rights (as defined in Section 3.1) and such other
data and materials as PDF shall reasonably require in order to perform the
Project and/or prepare the Deliverables as defined in the Statement of Work.

        1.3 DELIVERABLES. In performing the Project, PDF shall develop and/or
make for Toshiba the Deliverables in accordance with any schedules set forth in
the Statement of Work. The Deliverables shall meet in all material respects the
description of the Deliverable (the "DELIVERABLE DESCRIPTION") set forth in the
Statement of Work.

        1.4 ACCEPTANCE. Upon delivery of any Deliverable by PDF to Toshiba,
Toshiba shall examine the Deliverable to determine whether it reasonably
conforms to the Deliverable Description. If the Deliverable does not reasonably
conform to such Deliverable Description, Toshiba shall have fifteen (15) days
from the date of delivery thereof to reject such Deliverable and specify in
writing why it does not reasonably conform to such Deliverable Description. Upon
such rejection the parties shall work together to determine what needs to be
done to bring such Deliverable up to such Deliverable Description. If the
Deliverable does not meet the Deliverable Description, PDF shall exercise
reasonable efforts to correct promptly such nonconformity of the Deliverable
with the Deliverable Description and redeliver the Deliverable to Toshiba

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upon completion of such correction within one month following the parties'
agreement referenced in the preceding sentence but only if there are no
limitations outside of PDF's control. If there are limitations outside PDF's
control, PDF and Toshiba will negotiate in good faith a time for delivery of the
Deliverable. If a rejection of the Deliverable is not received by PDF within
fifteen (15) days after any delivery or redelivery of a Deliverable under this
Section 1.4, the Deliverable shall be deemed accepted. "ACCEPTANCE" (including
with correlative meaning the term "ACCEPT") shall mean any acceptance under this
Section 1.4. Toshiba agrees to deliver a notice of Acceptance (the "NOTICE OF
ACCEPTANCE") upon its decision to Accept any Deliverable hereunder within such
fifteen (15) days following such delivery or redelivery.

2.      FEES AND EXPENSES.

        2.1 SERVICES FEES AND EXPENSES. Upon delivery of each of the respective
Deliverables provided by PDF hereunder, Toshiba shall pay to PDF the fees
specified to the extent and in the manner set forth in the Statement of Work
("FEES"), and shall reimburse PDF for its out-of-pocket expenses incurred in
carrying out its obligations under this Agreement including, but not limited to,
travel, hotel, meal, document production, equipment and other expenses directly
related to the services performed hereunder further subject to the terms and
conditions set forth in the Statement of Work ("EXPENSES"). In no event shall
the Expenses for which Toshiba shall be liable hereunder exceed any limitation
on Expenses specified in the Statement of Work without written agreement from
Toshiba. PDF shall use reasonable and diligent efforts to deliver the
Deliverables hereunder within the estimated expenses and time schedule specified
in the Statement of Work.

        2.2 PAYMENT OF INVOICES If required by applicable law, PDF shall pay any
taxes and assessments levied or imposed by any Japanese tax or other
governmental body resulting from the services or the Deliverables to be provided
by PDF to Toshiba and the payment to be made by Toshiba to PDF hereunder,
including without limitation all personal property taxes on any of the foregoing
and any taxes or amounts in lieu of any of the foregoing paid or payable by PDF,
other than taxes based on PDF's net income. Toshiba agrees that PDF Solutions or
PDF Solutions' designated representative will have the right to participate and
negotiate in all discussions with the appropriate tax authorities regarding
taxes to be paid by PDF Solutions in the process of determining the required tax
burden, if any. The parties acknowledge that PDF Solutions shall be obligated to
pay any such tax at the reduced withholding income tax rate rather than the
ordinary rate by filing "Application Form for Income Tax Convention between the
United States and Japan" with the Japanese tax authorities. If applicable,
Toshiba shall send PDF the application form immediately after the execution of
this Agreement for PDF's signature and PDF shall promptly sign it and return it
to Toshiba so that Toshiba may file it with the applicable Japanese tax
authorities on behalf of PDF.

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3.      PROPRIETARY RIGHTS

        3.1 OWNERSHIP. Toshiba and PDF Solutions acknowledge and agree that, as
between them, ownership shall be as follows:

                      (a) PDF Solutions is the exclusive owner of all PDF
Technology and all Proprietary Rights in the PDF Technology;

                      (b) Toshiba is the exclusive owner of all Analysis,
Manufacturing Designs, Raw Data and all Proprietary Rights in the Analysis,
Manufacturing Design and the Raw Data; and

                      (c) Toshiba is the exclusive owner of Mask Sets.

        3.2 SOLELY DEVELOPED PROPRIETARY RIGHTS OWNERSHIP. Each party shall
solely own any Proprietary Rights solely developed by such party or the
employee(s) of such party, whether before, during or after the term of this
Agreement.

        3.3 GRANT OF LICENSE BY PDF SOLUTIONS. Subject to the terms and
conditions of this Agreement, including the timely payment of Fees, PDF
Solutions hereby grants to Toshiba and its Subsidiaries, *********** license to
***** (as set forth in the Statement of Work), any PDF Technology and associated
Proprietary Rights disclosed by PDF Solutions under this Agreement, but only to
the extent PDF Solutions has the right to grant such license; provided that such
license is solely for the development, manufacture,fabrication and sale of all
Toshiba's semiconductor products associated with Toshiba's ******** Process. The
foregoing license includes all PDF Technology disclosed by PDF Solutions in its
work for Toshiba hereunder; provided, however, that specifically excluded from
this license of PDF Technology is any and all software or software tools used by
PDF in connection with or during the course of such services, or software
manuals and documentation relating to such software or tools. Notwithstanding
the foregoing, Toshiba shall not be limited to the ******** Process with respect
to PDF Technology that consists of methodologies or practices observed by
Toshiba personnel in the course of PDF Solutions' work hereunder. In particular,
Toshiba shall have the right to create any new CV, GDS-II and related software
for the purpose of tranferring to other semiconductor process than ********
Process by using PDF's know-how of CV and modifying CVs generated by PDF under
this Agreement ("**********"); provided that Toshiba shall not violate any PDF's
copyright or patent. In the event that Toshiba reasonably determines that there
is a possibility of violating PDF's copyright or patent in connection with the
modification of ************ to be implemented by Toshiba, Toshiba shall consult
PDF and PDF shall provide Toshiba with it views thereon and/or alternative
solutions to avoid such possible violation. Toshiba shall be bound by and shall
cause its sublicensees to be bound by the confidentiality obligations contained
in

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Section 6 or obligations at least as restrictive as the confidentiality
obligations contained in Section 6. Except as specifically provided herein,
Toshiba shall not disclose or license PDF Technology to any third party. Toshiba
understands that PDF Solutions will not disclose to Toshiba certain proprietary
methods or trade secrets in connection with the services to be rendered by PDF
Solutions hereunder. To this end, PDF Solutions retains the right to take
industry standard measures to keep such proprietary methods or trade secrets
from Toshiba, unless the same defeats or substantially impedes the Scope of
Services and Technology under this Agreement.

        3.4 PDF SOLUTIONS SERVICES. PDF Solutions may do the following:

                      (a) to use, copy, compile, manipulate, analyze or
reproduce Raw Data and the Mask Sets solely for the purpose of performing under
this Agreement; and

                      (b) to use and rely upon Raw Data and Analysis for the
purpose of supporting Toshiba's yield ramp. PDF Solutions shall be bound by and
shall cause its sublicensees to be bound by the confidentiality obligations
contained in Section 6 or obligations at least as restrictive as the
confidentiality obligations contained in Section 6.

        3.5 NO OTHER RIGHTS. Except as otherwise set forth in this Section 3,
neither this Agreement nor performance and delivery of the Services and
Technology shall give either PDF Solutions or Toshiba any ownership, interest
in, or rights to, the Proprietary Rights owned or provided by the other party.

        3.6 DEFINITION OF SUBSIDIARY. For the purpose of this Agreement and the
Statement of Work, the term "SUBSIDIARY" of any party shall mean any corporation
or other entity more than fifty percent (50%) of the Voting Stock of which is
beneficially owned or controlled, directly or indirectly, by such party;
provided that such corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists. "VOTING STOCK" of
any entity shall mean any stock or other equity interest entitled to vote for
the election of directors or any equivalent governing body of such entity.
Notwithstanding the above, *********************************
************************************************************************
************************************************************************
**********.

4.      TERM AND TERMINATION.

        4.1 COMMENCEMENT. This Agreement shall commence as of the date first set
forth above and shall continue in force until completion of the Project, unless
sooner terminated as provided in this Section 4.

        4.2 TERMINATION.

               (a) If either party defaults in the performance of any material
obligation hereunder the non-defaulting party may give the defaulting party
written notice

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of such default within twenty (20) days following the non-defaulting party's
discovery of such default. If the defaulting party fails to cure such default
within forty-five (45) days (or such other time period as the parties shall
mutually agree) after the defaulting party's receipt of such notice of default,
then the non-defaulting party, at its option, may, terminate this Agreement by
giving the defaulting party written notice of termination of this Agreement
within ten days following the end of such 45-day period. If such notice of
default or notice of termination is not given within such period, then the
default shall no longer constitute cause for termination of this Agreement.

               (b) Either party may terminate this Agreement effective upon
written notice to the other party in the event the other party becomes the
subject of a voluntary or involuntary petition in bankruptcy or any proceeding
relating to insolvency, or assignment for the benefit creditors, if that
petition or proceeding is not dismissed within sixty (60) days after filing.
Such written notice of termination must be delivered no later than ten (10) days
following the expiration of such 60-day period. If such notice of termination is
not given within such 10-day period, then the default shall no longer constitute
cause for termination of this Agreement.

               (c) Either party may terminate this Agreement effective upon
written notice to the other party in the event that the other party is merged
with or into, or all or substantially all or the other party's assets are sold
to, a third party corporation or other entity, unless such acquiring corporation
or entity expressly agrees to assume the other party's obligations under this
Agreement. Such written notice of termination must be delivered no later than
ten (10) days following the consummation of such transaction. If such notice of
termination is not given within such 10-day period, then the default shall no
longer constitute cause for termination of this Agreement.

               (d) Toshiba shall be entitled to terminate this Agreement
upon forty-five (45) days prior written notice if (i) Toshiba reasonably rejects
the Deliverables due to their material nonconformity with the Deliverable
Description set forth in the Statement of Work (and clearly and properly
specifies the reason for such nonconformity), the Acceptance procedure set forth
in Section 1.4 shall have been exhausted without an Acceptance, and PDF does not
reasonably cure such material nonconformity within forty-five (45) days
following the final written rejection of such Deliverable, or (ii) Toshiba
reasonably and in good faith judges that the expected progress for the services
to be performed by PDF necessary to deliver the Deliverables hereunder cannot be
achieved within the mutually agreed time frame, and within forty-five (45) days
following such notice PDF cannot reasonably establish that such progress can be
achieved. This Agreement may then be terminated by a written notice of
termination delivered within ten (10) days following the applicable foregoing
forty-five (45) day period. If such written notice of termination is not given
within such 10-day period, then the default under this Section 4.2(d) shall no
longer constitute cause for termination of this Agreement.

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        4.3 TERMINATION OF RIGHTS. Upon expiration or termination of this
Agreement, all rights and licenses granted and all obligations undertaken
hereunder shall forthwith terminate except the following:

               (a) Any and all licenses granted by PDF to Toshiba and its
Subsidiaries under this Agreement as to previously delivered, Accepted and paid
for Deliverables shall survive the expiration or termination of this Agreement
unless this Agreement is terminated by PDF in accordance with the provisions of
Section 4.2(a), (b) or (c) in which case none of such licenses shall survive and
all copies of such Deliverables shall be returned to PDF.

               (b) If Toshiba terminates this Agreement for the reason as stated
in Section 4.2, Toshiba shall pay to PDF, within thirty (30) days after the date
of termination, (i) the actual amount of unreimbursed Expenses incurred by PDF
through the date of termination by Toshiba, (ii) the amount of the Deliverables
Fees with respect to Deliverables delivered or otherwise accrued, and unpaid
through the date of termination; provided that payment of such Fees and Expenses
shall be subject to the provisions of Section 2.

               (c) If Toshiba terminates this Agreement for the reason specified
in Section 4.2, Toshiba shall pay to PDF:

                      (i) the amount of any unpaid Product Fees accrued prior to
the date of termination; and

                      (ii) the amount of any future Product Fees in accordance
with Paragraph (e)(iii) of the Statement of Work with respect to any Product
that incorporates any Deliverable delivered by PDF to Toshiba which Product Fees
shall be payable through the term of payment specified in such Paragraph
(e)(iii); provided that Product Fees to be accrued and paid following a date of
termination shall terminate only if the basis for termination of this Agreement
shall be (A) an involuntary bankruptcy under Section 4.2(b) or (B) the material
default under PDF's confidentiality obligations under Section 6 of this
Agreement;

provided that payment of such Product Fees under this Section 4.3(c) shall be
subject to the provisions of Section 2.

               (d) The provisions of Sections 2 (including by reference
Toshiba's obligations to pay Fees and Expenses set forth in the Statement of
Work but subject to Section 4.3(b) and (c)), 3.1, 3.2, 3.4 (with respect to
Deliverables delivered by PDF to Toshiba and Accepted and paid for by Toshiba),
4, 6, 7, 8.4, 8.7 and 8.8 shall survive any expiration or termination of this
Agreement.

5. INDEPENDENT CONTRACTORS. The relationship of PDF and Toshiba established by
this Agreement is that of independent contractors, and nothing contained in this

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Agreement shall be construed to (i) give either party the power to direct or
control the day-to-day activities of the other, (ii) constitute the parties as
agents, partners, joint venturers, co-owners or otherwise as participants in a
joint or common undertaking, or (iii) allow either party to create or assume any
obligation on behalf of the other for any purpose whatsoever.

6. CONFIDENTIALITY. Except as otherwise provided herein, each party agrees, at
all times during the term of this Agreement and for ***** years after receipt of
Confidential Information, to hold in strictest confidence (and to cause its
Subsidiaries to hold in strictest confidence), and not to use, except for the
purposes contemplated herein, or to disclose to any person, firm or corporation
without written authorization of the other party, any Confidential Information
of the disclosing party. As used in this Agreement, "CONFIDENTIAL INFORMATION"
means any proprietary information, technical data, trade secrets or know-how,
including, but not limited to, research, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, yield data or other information disclosed by one
party to the other, which is marked as "Confidential," and/or orally or in other
tangible form identified as confidential at the time of disclosure and confirmed
as Confidential Information in writing within thirty (30) days of its initial
disclosure, provided that any methodologies, practices or procedures used by PDF
and observed by Toshiba shall constitute "Confidential Information" within the
meaning of this Agreement without any such notification. Confidential
Information does not include any of the foregoing items which have become
publicly known and made generally available through no wrongful act of the
receiving party, or which is already known by the receiving party as evidenced
by the receiving party's files immediately prior to such disclosure, or which
the receiving party proves was independently developed, prior to the receiving
party's receipt of such Confidential Information, by employees or other
representatives of such receiving party who have not had access to such
information or the ideas or theories underlying such Confidential Information.
Each party receiving Confidential Information of the other party agrees to limit
disclosure of Confidential Information to only those of its officers and
employees the receiving party considers necessary to complete its services
contemplated in this Agreement and then only after such officers and employees
have undertaken by Recipient under this Agreement. Except as otherwise agreed by
both parties, PDF shall return to Toshiba all Confidential Information of
Toshiba owned by Toshiba and not licensed to PDF or jointly owned by PDF and
Toshiba and copies thereof, within thirty (30) days after completion of the
Project or after expiration or termination of this Agreement. Except as
otherwise agreed by both parties, Toshiba shall return to PDF all Confidential
Information of PDF owned by PDF and not licensed to Toshiba or jointly owned by
PDF and Toshiba and copies thereof, within thirty (30) days after completion of
the Project or after expiration or termination of this Agreement.

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7. WARRANTY. PDF warrants to Toshiba that PDF's Intellectual Property utilized
by PDF in performing the Project does not infringe any patent, copyright, trade
secret, and any other proprietary rights of any third party. EXCEPT FOR THE
FOREGOING, NOTHING UNDER THIS AGREEMENT, OR THE STATEMENT OF WORK OR PROJECT
SHALL BE DEEMED TO BE A WARRANTY OR REPRESENTATION AS TO THE OUTCOME OF ANY
PROJECT OR THE EFFICACY OF ANY RECOMMENDATIONS MADE BY PDF. NOTHING UNDER THIS
AGREEMENT OR THE STATEMENT OF WORK SHALL BE DEEMED TO CREATE ANY LIABILITY ON
THE PART OF PDF WITH RESPECT TO THE OUTCOME OF A PROJECT OR ANY ACTIONS TAKEN BY
TOSHIBA AS A CONSEQUENCE OF PDF'S RECOMMENDATIONS.

8. MISCELLANEOUS.

        8.1 AMENDMENTS AND WAIVERS. Any term of this Agreement or any Statement
of Work may be amended or waived only with the written consent by the
representatives of the parties.

        8.2 SOLE AGREEMENT. This Agreement and the Statement of Work constitute
the sole agreement of the parties and supersede all oral negotiations and prior
writings with respect to the subject matter hereof.

        8.3 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by an internationally-recognized delivery service (such as Federal
Express or DHL), or after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address as set forth above or as subsequently
modified by written notice.

        8.4 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

        8.5 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in accordance with its other
terms.

        8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.

        8.7 ARBITRATION. The parties shall attempt in good faith to resolve any
dispute

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arising under this Agreement. If the parties are unable to resolve dispute
within a reasonable period then the dispute shall be finally settled by binding
arbitration (a) if brought by Toshiba, in San Jose, California, in accordance
with the Commercial Rules of the American Arbitration Association and, (b) if
brought by PDF, in Tokyo, Japan in accordance with the rules of the
International Chamber of Commerce. In either case such arbitration shall be
conducted by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision.

        8.8 EXPORT CONTROL. Neither party shall, directly or indirectly export
or re-export any technical data or information or data received from the other
party hereunder or the direct products thereof to any destination prohibited or
restricted by export control regulations of Japan and the United States,
including U.S. Export Administration Regulations, without proper authorization
from the appropriate governmental authorities. In addition, the parties agree
that no technology furnished to the other will be used for any purpose to
develop and/or manufacture nuclear, chemical or biological weapons and/or
missiles.

        8.9 NON-SOLICITATION. Toshiba shall not solicit or influence or attempt
to influence any person employed by PDF to terminate or otherwise cease his or
her employment with PDF or become an employee of Toshiba or any competitor of
PDF. A company's status as a competitor of PDF shall be determined by PDF in its
sole discretion.

        8.10 PUBLICITY. Neither party shall disclose the terms of this Agreement
to any third party, or in any manner advertise or publish statements to such
effect, without the prior written consent and mutual agreement as to the
content, medium, and manner of the public announcement of the other party.
Customer agrees during the term to work in good faith with PDF Solutions to
produce mutually acceptable public announcements by PDF Solutions of PDF
Solutions' engagement with Customer under this Agreement. Notwithstanding the
above, should one of the parties be required to disclose either the existence or
terms of this Agreement to a court of law, a governmental agency, an auditor or
a bank, such party may do so without the prior written consent of the other
party provided that the disclosing party: (i) notifies the recipient of the
confidential nature of the information, (ii) requests confidential treatment of
such information, (iii) limits the disclosure to only such information as is
required under the circumstances, and (iv) delivers prompt notice to the other
party of such requested or actual disclosure.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first

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set forth above.

PDF SOLUTIONS, INC.                         TOSHIBA CORPORATION

By:    /s/ John K. Kibarian                 By:  /s/ Yasuo Morimoto

Name:    John K. Kibarian                   Name:    Yasuo Morimoto

Title:           President                  Title:      President & CEO,
                                                     Semiconductor Company

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                                    EXHIBIT A

                                STATEMENT OF WORK

                               *******************
                                       For
                           **************************
                        *********************************

        This Statement of Work is made between PDF Solutions, Inc. ("PDF") and
Toshiba Corporation ("TOSHIBA") pursuant to and attached as an exhibit to that
certain Technology Cooperation Agreement dated as of ************** (the
"AGREEMENT") between PDF and Toshiba. All terms and conditions contained in this
Statement of Work are subject to the terms and conditions set forth in the
Agreement. The date of commencement of services under this Agreement was
************* (the "ENGAGEMENT COMMENCEMENT DATE").

PROJECT DESCRIPTION & GOALS

               PDF Solutions agrees to provide Toshiba with *******************
services for Toshiba's ********************** technology development. Services
in support of this project are divided into two major components:
               (1)******** ***************************
               (2)******** **************************

                      (a) PROJECTS, DELIVERABLES AND FEE

               Two sections are outlined below that review the project services.
The two sections each have Project Phases and Deliverables.

(1) ******** *******************  PROJECT (START DATE = ********)
               Seven phases are included in this project;
                 (i) *******************************************
                 (ii) ******************************
                 (iii) **************************************
                 (iv) **********************
                 (v) ******************
                 (vi) *************************
                 (vii)******************************************
               Five deliverables are included in this project;
                 (i) *****************************
                 (ii) ****************************
                 (iii)************** **************
                 (iv) *************************************
                 (v) ******** ************************

                                     SOW-1

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        (a) DESCRIPTION OF PHASES (START DATE : **********)
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
PROJECT PHASE                        PDF SOLUTIONS WORK STEPS                               DURATION
-----------------------------------------------------------------------------------------------------------
<S>                                  <C>                                                    <C>
**********                            *****                                                 ***
**********                            *****                                                 ***
**********                            *****                                                 ***
**********                            *****                                                 ***
**********                            *****                                                 ***
**********                            *****                                                 ***
**********                            *****                                                 ***
</TABLE>

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        (b) DELIVERABLES
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
DELIVERABLE                DESCRIPTION            PLANED      DELIVER-    QUARTERLY   ESTIMATED
                                                 DELIVERY     ABLE FEE   ***********  PERIOD OF
                                                   MONTH                     FEE      ***********
                                                                                      FEE
-----------------------------------------------------------------------------------------------------
<S>               <C> <C>                        <C>           <C>       <C>          <C>

**********             *****                      ***          ***       ***          ***
**********             *****                      ***          ***       ***          ***
**********             *****                      ***          ***       ***          ***
**********             *****                      ***          ***       ***          ***
**********             *****                      ***          ***       ***          ***
**********             *****                      ***          ***       ***          ***
</TABLE>

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(2)            ****************** PROJECT
               Four major phases are included in this project;
                 (i) **********************************
                 (ii) *********************
                 (iii) ****************************************************
                 (iv) **********************************************************
               Six deliverables are included in this project;
                 (i) *********************
                 (ii) *********
                 (iii) *********************
                 (iv) ***************
                 (v) **************** ***********
                 (vi) ********************************************************

        (a) DESCRIPTION OF PHASES (START DATE : *********)

(i) ************************************PHASE (START DATE = **********)

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------
PROJECT PHASE                       PDF SOLUTIONS WORK STEPS       ESTIMATED DURATION
------------------------------------------------------------------------------------------
<S>                                 <C>                            <C>

**********

(ii) ************************************PHASES (START DATE = **********)

------------------------------------------------------------------------------------------
PROJECT PHASE                       PDF SOLUTIONS WORK STEPS       ESTIMATED DURATION
------------------------------------------------------------------------------------------

**********

</TABLE>

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(iii) ************* ********** ******* ****** *********** (START DATE = *******)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------
    PROJECT PHASE                   PDF SOLUTIONS WORK STEPS                  ESTIMATED
                                                                              DURATION
------------------------------------------------------------------------------------------
<S>                    <C> <C>                                                <C>

**********

------------------------------------------------------------------------------------------

(iv) *********** ** ********** **** ** *********** **** ******* (START DATE = *********)

------------------------------------------------------------------------------------------
PROJECT PHASE                       PDF SOLUTIONS WORK STEPS                  ESTIMATED
                                                                              DURATION
------------------------------------------------------------------------------------------

**********                                                                    ************

------------------------------------------------------------------------------------------

**********

------------------------------------------------------------------------------------------
</TABLE>

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        (b)     DELIVERABLES
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
DELIVERABLE                DESCRIPTION            PLANED      DELIVER-    *********   ESTIMATED
                                                 DELIVERY     ABLE FEE   ***********  PERIOD OF
                                                   MONTH                     FEE      ***********
                                                                                      FEE
-----------------------------------------------------------------------------------------------------
<S>               <C> <C>                        <C>           <C>       <C>          <C>

**********

-----------------------------------------------------------------------------------------------------
</TABLE>

*1 : ******* *** ********* ******* *********** ** ******** *** ** **** ********
****** ***** ******** ******* *********** ******* ******** **** **** ****
*******.

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                              CONFIDENTIAL MATERIAL
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        (b)    TEAM STRUCTURE

        The team is structured to divide the decision-making, project leadership
and analysis management between three bodies in the form of "TEAM STRUCTURE" in
the form attached to this Statement of Work as Exhibit C.

        Toshiba will establish a Steering Committee (the "STEERING COMMITTEE")
which will consist of (a) ******************** and any other Toshiba manager who
is necessary in order for yield improvement decisions to be made, and (b)
****************** or another senior executive of PDF. The Steering Committee
will be limited to four representatives of Toshiba and one representative of
PDF. The Steering Committee will have sufficient authority to make the relevant
decisions concerning this Project. The Steering Committee is responsible for
giving the team its charter, deciding which yield improvement actions to take
and who in the Toshiba organization will be responsible for carrying out the
improvement.

        Project leadership responsibility will be shared by *****************
(the "TOSHIBA PROJECT MANAGER") on behalf of Toshiba, and *******************
(the "PDF PROJECT MANAGER"), on behalf of PDF. Their primary responsibility will
be to ensure overall project status include delivery timing and the deliverables
of the work chartered by the Steering Committee. In order to maximize the
likelihood that the team is making good progress, the Project Managers will
monitor the team's work on a monthly basis and help reduce any organizational
obstacles which may impede the team's progress.

        Technical responsibility will be shared by **************** for
************* project, **************** for *************** project,
**************** for ********* and others (the "TOSHIBA ENGAGEMENT MANAGER") on
behalf of Toshiba, and ************** ************************, ****************
for ******************* (the "PDF ENGAGEMENT MANAGER"), on behalf of PDF. Their
primary responsibility will be to ensure that the team is making good progress
toward delivery of the work. Engagement Managers will monitor the team's work on
a weekly basis and ensure the project from technical view point.

        The day-to-day analyses will be conducted by a ******************* Team
("****") of engineers from Toshiba and PDF. A PDF Engagement Manager will manage
the activities of the ****. The PDF Engagement Manager will be responsible for
directing all team members in their analyses as well as aggregating and
synthesizing the results of all the analyses conducted by the entire team. In
addition, the Engagement Managers will be the principal point of contact for any
technical questions regarding the project.

        Up to *************** Toshiba engineers will be asked to participate
actively with the ****. Toshiba team members should be assigned to **** and be
skilled at ********************************************************************.
Toshiba engineers will be placed on the Team after approval by PDF for the
purpose of gathering data and conducting analyses. The Toshiba team members will
work at the direction of the Engagement Managers.

                                      SOW-7
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                              CONFIDENTIAL MATERIAL
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        (c)    TOOLS

        Toshiba will provide PDF with office space and other reasonable and
customary business resources. In particular, Toshiba will provide PDF with
secure office space large enough to accommodate the required PDF personnel in
addition to the Toshiba engineers assigned to work on the ***. Toshiba will
provide PDF with office equipment reasonably requested by PDF from time to time
including **** international access telephones (including such analog lines as
PDF shall request), an international access Facsimile machine and line, and a
photocopier. Toshiba will provide PDF with 24-hour access to the team office so
work can continue at night and on weekends.

        Toshiba will provide PDF with computing resources that PDF reasonably
deems necessary to conduct ********************. The details of such request
will be sent in a separate document to the Toshiba Engineering Manager but in
general, Toshiba will provide **** engineering workstations connected to both
the Toshiba network and the Internet. Toshiba will also provide such other
accessories as PDF shall reasonably request including, but not limited to, a
removable data storage device, such as a tape drive and a printer.

        (d)    LOCATION

        The Project will be conducted by Toshiba's and PDF's personnel at
Toshiba's **********************************************************************
************, and PDF's facilities in San Jose, CA. In certain cases, PDF may
require Toshiba engineers to work at the PDF facility in San Jose, California.
PDF engineers may also work in ***** and **** factory when the engagement
manager believes this is necessary to achieve progress. If Toshiba shall provide
PDF employees with an English version of the employee rules and regulations in
force at the Toshiba facilities, then PDF employees shall comply with such rules
and regulations in all material respects in an equivalent manner as other
Toshiba employees generally. Any failure to comply with such rules and
regulations shall not constitute a default of a material obligation constituting
a basis for termination of this Agreement unless (A) Toshiba has repeatedly
given notices of such failure to PDF and PDF has repeatedly failed to remedy
such noncompliance as specified in such notices, (B) Toshiba shall notify PDF in
writing that failure to cure such repeated non compliance within 45 days shall
constitute a basis for termination of the Agreement and PDF shall fail to remedy
such non compliance, and (C) Toshiba gives final notice of termination within
ten (10) days following such 45 day period. PDF shall take all reasonable steps
necessary to ensure that all employees resident at or visiting a Toshiba
facility shall treat as confidential in accordance with Section 6 all material
information of a proprietary nature observed by or disclosed to such employee,
and shall comply in all material respects with the all export control
obligations contained in Section 8.8.

        FEES AND EXPENSES.

        Toshiba will pay PDF Fees consisting of three components: (1) the
*********** Fees and (2) the *********** Fees and (3) the ******* Fees, each as
defined below:

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(i)     DELIVERABLE FEES. Toshiba will pay PDF a deliverable fee described in
        each deliverable tables after each deliverable are provided to Toshiba
        (the "DELIVERABLE FEES"). The payment will be made within thirty (30)
        days of receipt of an invoice covering such Deliverable Fees.

(ii)    ************************************************************************

(iii)   ************************************************************************

EXPENSES.

        Toshiba will reimburse PDF for all reasonable and customary Expenses
incurred by PDF in performing the services, delivering the Deliverables and
fulfilling its obligations under the Project. The Expenses will be billed to
Toshiba at PDF's cost and will not exceed an average of ******** per calendar
quarter without the written consent of Toshiba. PDF will submit to Toshiba
invoices specifying the Expenses and Toshiba will pay the Expenses within thirty
(30) days of the receipt of the invoice. Invoices will be submitted to Toshiba
no more frequently than a monthly basis. Payments of invoices for PDF's expenses
will be made in accordance with the provisions of Section 2.2 of the Agreement.
Notwithstanding the foregoing if PDF is entitled to receive reimbursement of the
same travel, lodging and other similar expenses from both Toshiba and other
customers, then PDF will allocate any expenses that are for the benefit of both
Toshiba and such other customers, among Toshiba and such other customers on a
basis that PDF shall determine is fair, just and equitable to Toshiba and such
other customers taking into account all relevant factors.

                                      SOW-9<PAGE>   1
                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

                                                                    EXHIBIT 10.4
                             CONFIDENTIAL TREATMENT
                        PDF SOLUTIONS, INC. HAS REQUESTED
                        THAT THE MARKED PORTIONS OF THIS
                        DOCUMENT BE ACCORDED CONFIDENTIAL
                      TREATMENT PURSUANT TO RULE 406 UNDER
                     THE SECURITIES ACT OF 1933, AS AMENDED.

PHILIPS SEMICONDUCTOR
JANUARY 21, 2000

                                YIELD IMPROVEMENT
                              CONSULTING AGREEMENT

        This Yield Improvement Consulting Agreement (this "AGREEMENT") effective
as of ****************** (the "EFFECTIVE DATE") is entered into by and between
Philips Semiconductor, a corporation organized under the laws of California
having its principal place of business at PO Box 3409, Sunnyvale, CA 94088,
("PHILIPS") and PDF Solutions, Inc., a corporation organized under the laws of
California, having its principal place of business at 333 West San Carlos
Street, Suite 700, San Jose, California, U.S.A. ("PDF").

1.      YIELD IMPROVEMENT SERVICES.

        1.1 During the term of this Agreement, PDF will provide consulting
services with respect to integrated circuit yield management issues to Philips.
The services (the "PROJECT") are described in detail on a statement of work (the
"STATEMENT OF WORK") attached hereto as Exhibit A. The manner and means used by
PDF to perform the Services desired by Philips are in the sole discretion and
control of PDF. The Statement of Work shall be governed by the terms of this
Agreement, and specifies:

               (a)  Deliverables. The specific deliverables (the "DELIVERABLES")
                    to be delivered under the Project and relevant milestones
                    for delivering the Deliverables;

               (b)  Time Line. A time line for the Project and delivery of the
                    Deliverables;

               (c)  Team Members. The team members from PDF and Philips who are
                    to work on the Project and the expected time contributions
                    for each such member;

<PAGE>   2
                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

               (d)  Data and Tools. The required data, tools, hardware,
                    software, materials, access to personnel and facilities, and
                    other materials required for effectively completing the
                    Project;

               (e)  Location. The geographic location where each component of
                    the Project will be completed;

               (f)  Fees. The amount and structure of service fees and expenses
                    payable to PDF.

        1.2 Under this Agreement, PDF is not providing or licensing to Philips
any existing PDF software programs or products, except to the extent set forth
in the Statement of Work, but then only to the extent set forth in a separate
software license agreement specifying the software licensed.

        1.3 Philips will provide PDF with such information, materials,
technology and Intellectual Property (as defined in Section 3.1) as PDF shall
reasonably require in order to perform the Project and/or prepare the
Deliverables as specified in the Statement of Work (the "LICENSED PHILIPS
TECHNOLOGY"). Philips hereby grants PDF a **************************************
license to use and practice the Licensed Philips Technology, in order for PDF to
perform the Services and develop or prepare the Deliverables solely during the
term of this Agreement. Philips agrees to obtain for PDF the right to use, for
the purpose of performing the Services and preparing the Deliverables, such
third party information, materials and technology, and the Intellectual Property
rights therein, as PDF reasonably requires in order to perform the Services
and/or prepare the Deliverables.

        1.4 In performing the Project, PDF shall exercise all commercially
reasonable efforts to prepare, develop and/or make for Philips the Deliverables
in accordance with the time schedules set forth in the Statement of Work. PDF
shall exercise all commercially reasonable efforts to prepare the Deliverables
in conformity with the specifications set forth in the Statement of Work for
such Deliverables.

        1.5 Upon delivery of any Deliverable by PDF to Philips, Philips shall
examine the Deliverable to determine whether it reasonably meets the
Specifications set forth in the Statement of Work. If the Deliverable does not
reasonably meet such Specifications, Philips shall have ten (10) days from the
date of delivery thereof to reject such Deliverable and specify why it does not
reasonably meet such Specifications. Upon such rejection the parties shall work
together to determine what needs to be done to bring such Deliverable up to such
Specifications. If the Deliverable does not meet the Specifications, PDF shall
exercise reasonable efforts to correct promptly such nonconformity of the
Deliverable with the Specification and redeliver the Deliverable to Philips upon
completion of such correction as soon as reasonably practicable. If a rejection
of the Deliverable is not received by PDF within such ten (10) day Period, the
Deliverable shall be deemed accepted. Any such acceptance is referred to as an
"ACCEPTANCE." Philips agrees to deliver a notice of Acceptance (the "NOTICE OF
ACCEPTANCE") of any Deliverable that is Accepted hereunder within such ten (10)
day period.

                                       2

<PAGE>   3

                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

        1.6 Philips and PDF agree to cooperate in good faith to achieve
completion of the Services in a timely and professional manner. Philips
understands and agrees that PDF's provision of the Services may depend on
Philips completing certain tasks or adhering to certain schedules within
Philips's control. Consequently, the schedule for completion of the Services or
any portion thereof or delivery of any Deliverable may require adjustments or
changes in the event such Philips's tasks or schedules change or are modified or
are not completed as anticipated. PDF shall bear no liability or otherwise be
responsible for delays in the provision of Services or any portion thereof
occasioned by Philips's failure to complete a Philips task or adhere to a
Philips schedule.

2.      FEES AND EXPENSES.

        2.1 For the performance of the Project and the Deliverables provided by
PDF hereunder, Philips shall pay to PDF the fees and expenses set forth in the
Statement of Work ("SERVICE FEES"). Philips shall also reimburse PDF for its
out-of-pocket expenses incurred in carrying out its obligations under this
Agreement including, but not limited to, travel, hotel, meal, document
production and other expenses directly related to the Services performed
hereunder further subject to the terms and conditions set forth in the Statement
of Work ("EXPENSES").

        2.2 PDF shall invoice Philips for its Service Fees and Expenses upon
delivery of a Deliverable or otherwise earning a Service Fee, and otherwise on a
monthly basis. Such invoice shall be accompanied by a reasonably detailed
brokedown of the invoiced amount. All invoices shall be due and payable when
invoiced, and shall be deemed overdue if they remain unpaid 30 days after they
become payable. Philips shall pay to PDF the Service Fee so invoiced, within
thirty (30) days after its receipt of PDF's invoice therefor.

        2.3 All payments by Philips hereunder shall be made by wire transfer to
a bank account to be designated by PDF. The amounts payable to PDF set forth in
the Statement of Work are exclusive of any sales or use or other taxes or
governmental charges. Philips shall be responsible for payment of all such taxes
or charges except for any taxes based solely on PDF's net income. If Philips is
required to pay any taxes based on this Section 2.3, Philips shall pay such
taxes with no reduction or offset in the amounts payable to PDF hereunder.

        2.4 All amounts which Philips does not pay on a timely basis as required
by this Agreement shall be subject to a late charge equal to one and one-half
percent (1.5%) per month (or, if less, the maximum allowed by applicable law).
In the event that any payment due hereunder is overdue, PDF reserves the right
to suspend performance until such delinquency is corrected.

3.      OWNERSHIP.

        3.1 Each party shall solely own any Intellectual Property developed
solely by the employee(s) or agents of such party, whether before, during or
after the term of this Agreement. For the purposes of this Agreement, provided
however, that PDF shall grant Philips a ********* ******** license ***** to use
any Intellectual Property constituting a Deliverable that is developed solely by
PDF pursuant to a Statement of Work. "INTELLECTUAL

                                       3

<PAGE>   4
                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

PROPERTY" shall mean the Confidential Information (as defined in Section 7),
patent and patent applications, copyrights, trademarks, trade secrets, know how,
maskworks, industrial design rights, rights of authorship, rights of priority,
and any other intellectual property rights or rights protecting intangible
property information recognized by the law of any country or jurisdiction of the
world.

        3.2 Any Intellectual Property jointly developed by the employees of both
parties in connection with or as a result of the Services shall be jointly-owned
by PDF and Philips; provided, however, that any such Intellectual Property so
jointly developed by PDF and Philips which consists of, effects or results in
any improvement, enhancement or derivative work of PDF's software and
methodologies (including, problem solving processes and practices) and
Intellectual Property shall be solely owned by PDF but subject to the license
provided in Section 3.4; provided, further, that any such Intellectual Property
so jointly developed by PDF and Philips in the manner embodied in the
Deliverables and in Philips's product designs, products, fabrication facilities
or fabrication processes shall be owned solely by Philips. Each party shall have
the right to use, exercise, disclose and license to third parties such jointly
developed Intellectual Property that is not solely owned by the other party
without accounting to or the consent of the other party.

        3.3 PDF shall grant to Philips and its subsidiaries a **************
************ ******** *** ******** license (****************************
*****************************) to use, have used for Philips and/or its
subsidiaries, copy, modify and/or enhance the Deliverables as set forth in the
Statement of Work and any PDF-owned methodologies or practices that Philips
shall observe in the ordinary course of the provision of services by PDF under
this Agreement (collectively, the "LICENSED PROPERTY") for any purpose in
connection with sales, development, manufacture, fabrication, and/or use of
products of Philips and/or its subsidiaries, but only to the extent PDF has the
right to grant such license; provided that such license shall not extend to any
software or tools used by PDF in connection with or during the course of such
services or to any software manuals or documents relating to such software or
tools except as specifically provided herein; provided, further, that Philips
shall be bound by and shall cause its sublicensees to be bound by the
confidentiality obligations contained in Section 7; provided, further, that
Philips shall not disclose or license any such Licensed Property to any third
party independent of the third party's sale, development, manufacturing,
fabrication and/or use of semiconductor products in connection with Philips
technology or Philips products. Philips understands that PDF will not disclose
to Philips certain proprietary methods or trade secrets in connection with the
services to be rendered by PDF hereunder. To this end, PDF retains the right to
take industry standard measures to keep such proprietary methods or trade
secrets from Philips.

        3.4 Except as otherwise set forth in this Section 3, neither this
Agreement nor performance of the Project shall give either PDF or Philips any
ownership, interest in or rights to the Intellectual Property owned or provided
by the other party.

4.      TERM AND TERMINATION.

        4.1 This Agreement shall commence as of the date first set forth above
and shall continue in force until completion of the Project, unless sooner
terminated as provided in this Section 4.

                                       4

<PAGE>   5

        4.2 This Agreement may be terminated upon **************** prior written
notice by either party if the other party materially breaches or fails to
perform any material obligations-hereunder and the breaching party fails to cure
such breach within thirty (30) days of written notice of breach from the non
breaching party. Notwithstanding the foregoing, the cure period for any failure
of Philips to pay fees and charges due hereunder shall be 10 days from the date
of receipt by Philips of any notice of breach relating thereto.

        4.3 Upon expiration or termination of this Agreement, all rights and
licenses granted and obligations undertaken hereunder shall forthwith terminate
except the following:

               (a)    Any and all licenses granted by PDF to Philips under this
                      Agreement shall survive the expiration or termination
                      unless this Agreement is terminated by PDF or Philips in
                      accordance with the provisions of Section 4.2.

               (b)    Within thirty (30) days of termination of this Agreement
                      for any reason, PDF shall submit to Philips an itemized
                      invoice for any Service Fees or Expenses accrued and
                      unpaid under this Agreement prior to the date of such
                      termination. Payments shall be made in accordance with
                      Section 2.

               (c)    The provisions of Sections 3.1, 3.2, 3.4, 4, 5, 6, 7, 8,
                      9, 10, 11 shall survive any expiration or termination of
                      this Agreement. .

5. INDEPENDENT CONTRACTORS. The relationship of PDF and Philips established by
this Agreement is that of independent contractors, and nothing contained in this
Agreement shall be construed to (i) give either party the power to direct or
control the day-to-day activities of the other, (ii) constitute the, parties as
agents, partners, joint venturers, co-owners, or otherwise as participants in a
joint or common undertaking, or (iii) either party to create or assume any
obligation on behalf of the other or bind the other for any purpose whatsoever
nor shall either party represent to anyone that it has such power or authority.

6. RIGHT TO PERFORM SERVICES FOR OTHERS. Philips acknowledges that PDF has
extensive expertise, experience, and proprietary products and tools in the area
of electronic design and yield improvement and that PDF intends to utilize such
expertise, experience, products and tools in providing consulting services and
other services to other clients. Subject to PDF's compliance with the
confidentiality provisions stated herein, nothing in this Agreement shall
restrict or limit PDF from performing such design consulting or other services
to any other entity in any industry, including the semiconductor and electronics
industries. Philips agrees that, except as otherwise agreed in this Agreement,
PDF and its employees may provide design consulting services similar in nature
to the Services for any third parties both during and after the term of this
Agreement. Subject to the limitations placed on PDF by the confidentiality
provisions of this Agreement or by any existing Non-Disclosure Agreement between
PDF and Philips, PDF may in its sole discretion develop, use, market, license,
offer for sale, or sell any software, application or product that is similar or
related to that which was developed by PDF for Philips hereunder.

7. CONFIDENTIALITY.

                                       5

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                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

        7.1 Except as otherwise provided herein, each party agrees, at all times
during the term of this Agreement and for ***** years after receipt of
Confidential Information, to hold in strictest confidence (and to cause its
subsidiaries, employees and affiliates to hold in strictest confidence), and not
to use, except for the purposes contemplated herein, or to disclose to any
person, firm or corporation without written authorization of the other party,
any Confidential Information of the disclosing party. As used in this Agreement,
"CONFIDENTIAL INFORMATION" means any proprietary information, technical data,
trade secrets or know-how, including, but not limited to, research, software,
developments, inventions, processes, design flows, methods, methodologies,
formulas, algorithms, technologies, designs, drawings, engineering, hardware
configuration information, yield data or other information disclosed by one
party to the other either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment.

        7.2 Confidential Information does not include any of the foregoing items
which (a) is or becomes a part of the public domain through no act or omission
of the other party; (b) was in the other party's lawful possession prior to the
disclosure as evidenced by the receiving party's files immediately prior to such
disclosure and had not been obtained by the other party either directly or
indirectly from the disclosing party; (c) is lawfully disclosed to the other
party by a third party without restriction on disclosure; or (d) is
independently developed by the other party by employees or agents without access
to the party's Confidential Information.

        7.3 Except as otherwise agreed by both parties, PDF shall return to
Philips all Confidential Information of Philips owned by Philips and not
licensed to PDF or jointly owned by PDF and Philips and copies thereof, within
thirty (30) days after completion of the Project or after expiration or
termination of this Agreement. Except as otherwise agreed by both parties,
Philips shall return to PDF all Confidential Information of PDF owned by PDF and
not licensed to Philips or jointly owned by PDF and Philips and copies thereof,
within thirty (30) days after completion of the Project or after expiration or
termination of this Agreement.

8.      WARRANTY.

        8.1 PDF warrants to Philips that the Services provided hereunder will be
performed in a professional manner consistent with the quality of PDF's
performance of services for similarly situated clients.

        8.2 THE WARRANTY ABOVE IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, WHICH ARE EXPRESSLY
DISCLAIMED. NOTHING UNDER THIS AGREEMENT, OR THE STATEMENT OF WORK OR PROJECT
SHALL BE DEEMED TO BE A WARRANTY AS TO THE OUTCOME OF ANY PROJECT OR THE
EFFICACY OF ANY RECOMMENDATIONS MADE BY PDF. NOTHING UNDER THIS AGREEMENT OR THE
STATEMENT OF WORK SHALL BE DEEMED TO CREATE ANY LIABILITY ON THE PART OF PDF
WITH RESPECT TO THE OUTCOME OF A PROJECT OR ANY ACTIONS TAKEN BY PHILIPS AS A
CONSEQUENCE OF PDF'S RECOMMENDATIONS.

                                       6

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                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

9.      LIMITATIONS ON LIABILITY.

        9.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL,
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES, HOWEVER
CAUSED, WHETHER FOR BREACH OF WARRANTY, CONTRACT, TORT NEGLIGENCE, STRICT
LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.

        9.2 No action, regardless of form, arising from this Agreement may be
brought by either party more than one (1) year after the cause of action has
accrued, except that an action for non-payment may be brought within
one (1) year after the later of the date of last payment or the date such
unpaid amount should have been paid.

10.     DISPUTE RESOLUTION.

        10.1 The parties shall attempt in good faith to resolve any dispute
arising under this Agreement informally according to the following procedure.
Upon written request of either party identifying a dispute to be resolved, each
party will designate an executive officer with the responsibility and authority
to resolve the dispute. These officers shall meet preliminarily within fifteen
(15) days (or such longer time period as the parties shall agree) after the
request to identify the scope of the dispute and the information needed to
discuss and attempt to resolve such dispute. These officers shall then gather
relevant information regarding the dispute and shall meet to discuss the issue
and to negotiate in good faith to resolve the issue.

        10.2 In the event the parties are unable to resolve the dispute within
thirty (30) days after the first meeting of the designated officers as specified
above (or such longer time period as the parties agree), then the dispute shall
be resolved by binding arbitration under the terms of this Section 10.2. The
arbitration shall be held in the city of San Jose, California U.S.A. in
accordance with the then existing Commercial Arbitration Rules of the American
Arbitration Association, as modified hereunder. The arbitration shall be
conducted by one (1) arbitrator, who shall be an expert in the area of the
industry and not associated with either party. The decision of the arbitrator
shall be binding upon the parties, and judgment in accordance with that decision
may be entered in any court having jurisdiction thereof.

        10.3 Nothing in this Section shall restrict the right of either party to
apply to a court of competent jurisdiction for emergency equitable relief prior
to or pending final determination of a claim by arbitration in accordance with
this Section. The prevailing party in any arbitration or judicial action brought
to enforce or interpret this Agreement or for relief for its breach shall be
entitled to recover its costs (including its share of arbitration fees) and its
reasonable attorneys fees therein incurred.

11.     MISCELLANEOUS

        11.1 AMENDMENTS AND WAIVERS; INTERPRETATION. Any term of this Agreement
or any Statement of Work may be amended or waived only with the written consent
by the representatives of the parties. The failure of a party to enforce any
provision of this Agreement shall not constitute a waiver of such provision or
the right of such party to enforce such provision

                                       7

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                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

or any other provision. In the event that any term of the Statement of Work
conflicts with the terms of this Agreement, the terms of this Agreement shall
take precedence.

        11.2 ASSIGNMENT. Neither party shall assign, delegate, or subcontract
any portion of its Canada and the United States, including U.S. Export
Administration Regulations, without proper authorization from the appropriate
governmental authorities. In addition, the parties agree that no technology
furnished to the other will be used for any purpose to develop and/or
manufacture nuclear, chemical or biological weapons and/or missiles.

        11.3 NON-SOLICITATION. Philips shall not solicit or influence or attempt
to influence any person employed by PDF to terminate or otherwise cease his or
her employment with PDF or become an employee of Philips or any competitor of
PDF. A company's status as a competitor of PDF shall be determined by PDF in its
sole discretion.

                                       8

<PAGE>   9
                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

        IN WITNESS WHEREOF, the-parties have executed this Agreement as of the
date first set forth above.

PHILIPS SEMICONDUCTOR               PDF SOLUTIONS, INC.

By:     /s/ David Ledvina           By:    /s/ PS Melman

Title:  Vice President              Title: CFO

                                       9

<PAGE>   10
                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

                        PHILIPS SEMICONDUCTORS - ********

DATE:          1/21/2000

TO:            Dave Joseph - PDF Solutions

CC:            *****************************************************************
               ****************************

FROM:          Miguel Delgado

RE.            PDF - Yield Improvement Deliverables

PRIORITY:      (Urgent)
------------------------------------------------------------------------------

The scope of the yield consulting service is to improve Philips *************
************** as outlined in the PDF Solutions, Inc. presentation "Yield
Improvement Proposal ******** ************, ********", dated ***************.

PDF's overall services shall be aimed to improve ******** yield to achieve
************** *****************************************************, plus
various deliverables as outlined in the above cited document and PDF revision
1.2, including software.

Outlined below is a list of essential deliverables from PDF Solutions, Inc. to
the ************. The bases of these deliverables are the above-named documents,
with the following clarifications and modifications:

1.      ***********************************************************************
        ****************************** *************************************
        *******************************.

2.      ************************ ************************.

        2.1    **************************************************************
               ********************************************************
               *********************************.

3.      Software License Fees:

        3.1    Philips-******** to be granted, ************, a software license
               to use **** for the duration of the project (expected to be *
               months).

        3.2    For use beyond the projects duration:

               3.2.1  ********************************************************
                      ********************************************************
                      ********************************

                                                                   CONFIDENTIAL

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                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

               3.2.2  ********************************************************
                      ********************************************************
                      ********************************

               3.2.3  ********************************************************
                      ********************************************************
                      ********************************

        3.3    *****************************************************************
               *****************************************************************
               *****************************************************************
               *****************************************************************
               **********************************************.

        3.4    *****************************************************************
               *****************************************************************
               *****************************************************************

        3.5    Complete training of the use of the software and analysis
               techniques - provide ***** classes that cover the use of the
               tools. Details to be worked out between PDF and Philips
               Semiconductors,***************.

               3.5.l   Training of approx. *** engineers over the *** months
                       engagement period in up to ******** classes.

        3.6    Software customization specific to ***************** will
               provided at mutually acceptable time frame throughout the life of
               the engagement.

4.      CV and CVA License Fees:

        4.1    ***************** included in fixed fee.

        4.2    ***************************************************

        4.3    Characterization Vehicles -
               **************************************** *****************. These
               are vehicles to provide the *******************************
               ***********.

        4.4    ****************************************************************
               ************************************************************.

        4.5    ****************************************************************
               ************************************************************.

5.      Module Support and Resources:

                                       2                            CONFIDENTIAL

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                             CONFIDENTIAL MATERIAL
                       OMITTED AND FILED SEPARATELY WITH
                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

        5.1    ****************************************************************
               ************************************************************.

        5.2    Philips Semiconductors will have full access to all PDF research
               and experience on best known methods/practices that are not
               restricted by confidentiality agreements.

        5.3    Philips ****************** will have full access to data search
               capabilities and resources within PDF to bring resolutions to
               issues and or enhancements to *************** and or ***********
               issues.

        5.4    On site resources for module issues and or software will be
               provided *******************************************************
               ************************************************************.

        5.5    Minimum PDF resources dedicated to the program:

               5.5.1  ***** Engagement Leader (~ **% on site).

               5.5.2  ***** ***************

                                       3                           CONFIDENTIAL
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                    THE SECURITIES AND EXCHANGE COMMISSION.
                        ASTERISKS DENOTE SUCH OMISSIONS.

                                   EXHIBIT "B"
                              TO SERVICES AGREEMENT

                                      FEES

GENERAL

The Services specifically contemplate is the improvement of Philips
************* yield ramp for *** from the baseline yield ramp as defined in the
Statement of Work (SOW). ***********
*****************************************************************************.

FIXED FEE

PDF shall invoice Philips for ***************************. The estimate is for
Phase 1 as described in the SOW is *****************. The duration may be
modified in writing by mutual agreement. Philips shall pay such invoices in
accordance with this Agreement.

INCENTIVE FEE

PDF and Philips shall review the yield of all wafers processed on the ****
product line and determine the yields.
***********************************************************
************************************************************ commencing upon
project commencement. ***************************************************
************************************************************.

* **************************************************************************
***************************************************************************
*****************************************************..

TRAVEL REIMBURSEMENT

PDF shall invoice Philips for all actual authorized travel in support of the
project. The time period for travel reimbursement shall include Phase 1 and
Phase 2 of the project
******************.

SOFTWARE LICENSE FEES

********************************************************************************
****************************************************************.

********************************************************************************
********************************************************************************
********************************************************************************
****************************************************.

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