Good afternoon. My name is Trinity, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tessera First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Shilton, you may begin.

Thank you, Trinity, and good afternoon, everyone. Thank you for joining us for the Tessera Technologies first quarter 2010 results conference call. This call is being broadcast live over the internet. A webcast replay will be available at tessera.com for 90 days after the call. In addition a telephone replay of this call will be available for two business days beginning approximately two hours after the completion of this call. To listen to the replay in the U.S., please dial 800-642-1687 and internationally dial 706-645-9291. The access code is 68338769. I will now read a short Safe Harbor statement. During the course of this conference call, management will make a number of forward-looking statements, which are statements regarding future events, including the future financial performance of the company. These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected. You’re cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this call. More information about factors that may cause results to differ from the projections made in these forward-looking statements can be found in Tessera’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2009, especially the sections of these filings titled Risk Factors. The Company disclaims any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after this call. On the call today from management are Hank Nothhaft, Tessera’s Chairman and Chief Executive Officer; Mike Anthofer, Chief Financial Officer; and Barney Cassidy, General Counsel. During this call today, management will discuss certain non-GAAP financial measures for comparison purposes only and they’ll be using non-GAAP numbers in their prepared remarks. The non-GAAP amounts of cost of revenues, research and development, selling, general and administrative expenses, net income and earnings per share do not include the following, stock-based compensations, acquired intangibles’ amortization charges and related tax effects. Management believes the non-GAAP amounts provide a more meaningful comparison measure of quarter-over-quarter and year-over-year financial performance. Please refer to the company’s first quarter 2010 earnings press release and to the company’s website for a reconciliation of non-GAAP measures to GAAP. After management’s opening remarks, we will open the call to your questions. So that management is able to respond to as many of you as possible, please restrict yourself to an opening and a follow-on question. Please re-enter the queue if you have additional questions. And with that, I will turn the call over to Hank.

Thank you, Moriah. Good afternoon. And welcome to Tessera’s quarterly earnings call. On today’s call, we will discuss our first quarter 2010 results and recent developments. We will then open the call for your questions. Total revenue for the first quarter of 2010 was $64.3 million. $55.8 million was Micro-electronics royalties and license fees, which included a $3 million payment from United Test and Assembly Center Ltd. or UTAC, for past royalties under a litigation settlement. $8.5 million was from Imaging & Optics, of which $5.4 million was products and services revenue. We benefited from increased first quarter demand in the lithography space, one of the key markets for our micro optics products. Turning to our Micro-electronics segment, in the first quarter we settled our breach of contract litigation with UTAC. The settlement includes $15 million in payments to us for past royalties that will be spread throughout 2010, as well as an updated license agreement with an initial term that runs through the end of 2016. In addition, we signed a packaging technology license agreement with Nanium, S.A., formerly the assembly and test operations of Qimonda in Portugal. We anticipate receiving initial revenue from this emerging DRAM assembly and test services company in the fourth quarter of this year. Looking at our served markets of DRAM and wireless, both the first and second quarters of 2010 are shaping up in line with forecasts for an improving semiconductor market. We expect to benefit from the anticipated greater unit growth. As a reminder, we recognize royalty revenue one quarter in arrears and our revenue growth will be limited due to the volume based pricing incentives we have with two large DRAM manufacturers. The impact of these volume based pricing incentives is reasonably predictable. All things being equal, they will have a…

Thank you, Hank. As stated, our total revenue for the first quarter was $64.3 million, which was just above the high-end of our guidance which was provided on March 1st of 2010. Total Micro-electronics revenue for the first quarter was $55.8 million, which includes $3 million related to the $15 million total settlement with UTAC and a $800,000 license fee. Excluding the effect of UTAC, Micro-electronics first quarter revenue was higher by 9% quarter-over-quarter and 15% year-over-year, excluding the $60.6 million revenue that was part of the $64.1 million total awarded in the first quarter of 2009 from the Amkor arbitration. With respect to the first quarter of 2010, Imaging & Optics total revenue was $8.5 million, which was up 6% both quarter-over-quarter and year-over-year. Royalties and license fees were $3.1 million, which were down 5% quarter-over-quarter and 42% year-over-year. However, underlying royalty growth was up sequentially in this segment by approximately 15 -- 51% to $2.3 million in the first quarter of 2010. As we have previously indicated, quarterly revenue for this line is uneven due to the timing and amount of license fees, which can be significant relative to the ongoing royalties. There was $1.8 million and $3.6 million of license revenue in the fourth quarter and first quarter of 2009 respectively, which compares to the $0.8 million in the first quarter of 2010. Imaging & Optics products and services revenue was $5.4 million, composed primarily of our micro optics business which grew 14% over the fourth quarter, driven by a strong demand in lithography and growth in our communications and other photonics businesses. On a year-over-year basis, products and services revenue was up 102%, reflective of the much improved semiconductor capital equipment market. Included in the products and services revenue was $0.2 million related to NRE --…

Thank you, Mike. I will briefly summarize the status of our current intellectual property protection efforts in the courts. With regard to our two International Trade Commission actions that are now on appeal before the U.S. Court of Appeals for the Federal Circuit, in the 605 wireless action, oral argument is scheduled to take place on May 7th, and in the 630 DRAM action, we are preparing our appellate brief. All our intellectual property protection efforts are geared toward protecting our intellectual property and innovation and assuring we get paid fairly for use of our inventions. We also are working to strengthen and improve the efficiency of the U.S. patent system, a key mechanism in ensuring not just our company’s innovation, but America’s innovation is protected and inventors properly compensated. We firmly believe innovation is our most important national resource and continue to spearhead Tessera’s efforts to ensure that America’s system of monetizing invention remains intact. In summary, in the first quarter we successfully defended our intellectual property, expanded our customer base in both Micro-electronics and Imaging & Optics and gained traction implementing our vision of bringing digital still-camera functionality to mobile devices. We expect the second quarter will be one of increased Micro-electronics revenue and further traction in our Imaging & Optics business. I thank you for your time and I would like to now open the call and welcome your questions. I’ll turn the call back to the operator. Operator?

Yes, sir. (Operator Instructions) Your first question comes from C J Muse with Barclays Capital.

Good afternoon. Thank you for taking my question. I guess, first question, Hank, you’ve got the Imaging & Optics now close to a $40 million run rate. Your announced target for ‘11 is $100 million and you discussed some really nice traction across multiple areas? And I guess and my question is, what kind of run rate do you think we could enter in the second half of ‘10, if there is kind of a swag range you could discuss and/or, what do you expect the key drivers to be to drive that uplift from the current run rate?

C J, thanks for your question. I’m not in a position to provide a forecast for the second half but I would like to adjust your question seriously. Yes, I mean, as you can imagine, it is a challenging goal to reach $100 million in revenue in 2011, and there’s significant risk involved. To be honest, if you asked me today rather than a number of quarters ago to initiate, say, $100 million in revenue in 2011 as our goal in the I&O business. I’d have to think long and hard about it, due to the amount of growth required to get there as you pointed out. But, however, we’re not in a position yet to know whether we will be successful in implementing our plans to reach this aggressive goal. So, we’ll have more visibility later in the year and I’ll readdress it at that time. But what we do know now is that, if we are able to achieve this goal, the revenue mix will have a higher product mix than we originally anticipated and communicated previously. Why, this is a result of changes in the market and the opportunities that we have been presented with. Another driver is our interest in participating in the Asia market particularly China. And we do not believe a pure licensing model will be sustainable in China. And that it will be more appropriate to follow a fabless model where our IP is incorporated in third-party chipsets or in actual products. So, making a product and/or following a fabless manufacturing model is what I like to call a friction-less transfer of IP, since it is a feature set of a product or an actual product itself that becomes the focus of the sale and not the underlying innovation. So in some aspects of our business already, we are getting royalty payments from certain Imaging & Optics licensees as a result of being embedded in chipsets. We’re in several right now and we are shipping high-value IP products out of our Micro-electronics division. So it is a -- in summary, it is a challenging goal. It has significant risk. If we execute to our plan, we in fact have a real chance of getting there. If that happens, the proportion of product revenue will be higher than the original goal that we published, which was a 70% royalty and license fee goal and 30% product. So I hope that addresses your question, C J.

It’s helpful. I guess as a follow-up, two housekeeping questions. The first one is how should we see the allocation of the UTAC -- remaining UTAC revenue in the second half of 2010 between Q3 and Q4. And then just clarification in terms of the guide you gave for non-GAAP operating expenses. Was that $32 to $33 million or did I miss something there?

Yeah. So C J, this is Mike. So the answer to your first question, you should expect $6 million in each of the third and fourth quarters to finish out the total of $15 million. And then, you did get the numbers right on the non-GAAP operating expense side, $32 to $33 million.

And there, you’re just including R&D and core SG&A and not litigation?

That excludes the litigation. So that would include cost of revenue, R&D and SG&A, litigation, we’re guiding to flat in terms of direction.

Great. Thank you.

You’re welcome.

Your next question comes from Krish Sankar with Banc of America. Sir, your line is open.

Yeah. Can you hear me there.

Yeah. Yeah, Krish.

Yeah. Thanks for taking my question. I have a couple of them. The first question was, I understand there is a step-up coming from your DRAM revenue. Is there anyway to figure out, if you didn’t have the step-up coming, what the guidance would have been for Q2?

Krish, this is Mike. I’m not going to answer that. We’ve given guidance in accordance with the information that we’ve provided to you and to everybody else through FD here on the impact of the volume based pricing adjustments. So that is all, so you just have to accept our guidance.

Okay. And following up on the Imaging & Optics target for next year. Is it safe to assume that if you can get more licensees to sign off on your Zoom technology, which has a much higher royalty per unit rate, would it be fair in assuming that then you could put in to the immediate target or you need -- more needs to happen beyond just like Zoom taking off?

Krish, this is Hank. Thank you for the question. So Zoom is certainly an integral part of our program to reach our goal. But to make the $100 million goal happen, we have to execute on a number of fronts. So, one, we have a fairly mature business in our micro optics division where we actually ship a variety of lenses to both the lithography and communications markets. Last year, that market was in fairly steep decline. This year, so far, it has returned more to what we had seen in previous years and to the extent that continues and continues on into 2011, that would certainly be an integral part of our ability to meet the $100 million goal in 2011. That is for the mature micro optics business to return and sustain a level we have seen historically and not last year’s level in 2009. In addition, our licensees that are producing product in both the packaging areas, wafer or sensor packaging and also in creating wafer-level optics lenses, have to continue on schedule, come on stream in time. We need the complete development of our 3 megapixel wafer-level optic lens on schedule. The last call we had, I mentioned that we needed to wrap up development of the 3 megapixel wafer-level lens by the end of the quarter ending in March and get it into our production level services, so that in the third quarter we could start turning it over to licensees. We did in fact meet that schedule within a week or two and we now have that lens in our production level services, working out the final kinks in order to get it to where it can be manufactured in high volume and turned over to our licensees. Our EDOF programs that we’ve already…

Thanks a lot, Hank. That was very helpful. And I just had one more follow-up on the [INO]. Not to beat a dead horse but this -- at what point will you feel comfortable even like, I think the number (inaudible) of $100 million or resetting the guidance expectations lower, will it be at sometime in the second half when you get more clarity in how the business is progressing or would you have to wait until the end of the year?

Okay. That’s a fair question. We’ll know before the end of the year. I would say end of third quarter or early fourth quarter, the good news or the handwriting will be on the wall, depending on what the case maybe. And so, we’ll be very transparent and we’ll keep you informed as to how we go. I think that’s as much as I can really say about it.

Okay. This is final question from my end. On your thermal management, on the air cooling -- silent air cooling business, have you had any design wins yet or is that still back-half of the year story? Thank you.

Yeah. Thank you for the question on silent air cooling. So, we haven’t had any design wins yet, but we’re optimistic as always. We certainly are actively engaged with the marketplace. I remain optimistic about our situation there and hopefully, we’ll be able to report a design win, who knows, maybe even on the next earnings call.

Your next question comes from Raj Seth with Cowen.

Thank you. This is from Simran Brar for Raj Seth. Hank, I was wondering if you could give us a little more detail on the silent air cooling opportunity. You had said that maybe you could report a design win next quarter. Do you think that you could monetize this opportunity in a significant way in 2011? Any details about your business model relative to this opportunity would be really helpful?

Yeah. Thank you for the question. As we engage the supply chain, potential customers, however you want to characterize it, for silent air cooling, we are in the process of deciding on a final, say, strategic business model that make sense for that product. We have a tremendous amount of intellectual property there. Last count I checked, north of 75 patents either issued or pending and the list growing. Even so, given where that product will have to be sold, where it will have to be manufactured and where ultimately it will be consumed. I’m not sure a licensing model is going to make sense for that product. So we’re exploring other alternatives, which will include, as I described it a fables, a fabless approach or one where we certainly, we wouldn’t be doing in-house manufacturing but we were, say, much more involved with the creation of the end product. And so, that’s the mode we’re in right now relative to the business plan. We haven’t met a final decision. We’re actively engaged in discovery mode. But I would characterize as everything we’re learning as one of encouragement. On the other hand, as far as it being a significant revenue item in 2011, I would say not. I would say we’re likely to have some revenue in 2011, but I would not rate this as a significant revenue contributor at this time for 2011.

Great. Thank you. I had just one more. You have about $8 share in cash on your balance sheet. How are you thinking about using this cash in terms of buybacks or M&A? If I’m not mistaken, you had said that in the optics space, you don’t really see significant targets. Are you looking at targets in other areas?

Thank you for asking the question and it certainly is a legitimate question. And we are generating cash even though we’re continuing to invest in the business. So we have been, last year, we certainly generated, probably in the last 15 months well over $100 million even though we’ve been investing. And as I previously stated, we believe that we can invest our cash in our businesses and create value for our shareholders. And as I see the view or my view, the main uses of cash, one, we need to continue to buy intellectual property that supports or expands our ongoing innovation and licensing in the Micro-electronics segment or allows us to create new innovations like our silent air cooling. For example, some of you may know this story, but all the, when we initially set on that trail to become involved with thermal management, we bought the initial patents from another company and then built a development team and then started our own in-house innovation to round out those patents. So we’re looking at other opportunities like that. But clearly, one good use of cash is, we have, what I would call a flywheel in the Micro-electronics packaging licensing business and we need to make sure that we keep the momentum up in that business, as you noted, it is generating a lot of cash. And so we need to continue to invest in innovation, research and development, extend our intellectual property and our capabilities in that market segment as broadly and as long as possible. And I would see that as one of the primary uses of our cash. The second thing where we want to invest and will continue to invest is in our existing businesses both the Imaging & Optics and the Micro-electronics businesses, not only through internal R&D. We intend to make strategically aligned business acquisitions. And even though we only made one small asset buy last year, it’s not for want of trying and it’s not for lack of effort and I would predict that we’ll be better at it this year and we’ll make some strategic acquisitions during the year. And three, we are looking to continue -- continuously looking to buy businesses that would allow us to leverage our expertise in creating and sustaining innovation in our customer base and our distribution channels or, so that they could leverage those or to provide an accelerated entry into China. So that’s our intended uses of cash and we’ve been consistent on that. I know there are legitimate views of how to use cash and I’m respectful of that. But that certainly is our view and has been our view of how we intend to use the cash in the company.

Great. Thank you so much for all the detail.

You’re welcome. Thank you for asking the questions.

Your next question is from Kevin Vassily with Pacific Crest Securities.

Yeah. Hi, guys. Thanks for taking my questions. First, question on the micro optics business. As you think about the opportunity over the next couple of years. How do you guys handicap your ability to get back to the levels pre 2008, I think you guys did in that business north of $34 million. Is that a reasonable goal?

Micro optics.

Yeah.

I’m sorry, Kevin, you said micro optics, but I was visualizing Micro-electronics for some reason.

No, no, no. I’m sorry, yeah, no, the…

I’m sorry for that.

Yeah.

So the question is where do we see the micro optics business going in the future?

Well, you’re at a run rate now that is still well below kind of what you did in 2007. So knowing that memory is a big driver, at least from what we can tell of that business and we seem to be on a fairly big investment cycle for leading edge lithography and memory right now. How should we frame the opportunity over the next couple of years? Is that a realistic level to get back to? Do you expect growth beyond, in some form beyond those levels that you saw in 2007?

Okay. Thank you. I understand the question. So, having been chastised by the sharp decline in semiconductor capital spending last year, we’re very cautious of our view in micro optics and number one. Number two, it is a very short cycle market for us. In other words, even though we have a limited number of customers, they do communicate with us on an ongoing basis, even with that, we don’t have a lot of long-term visibility on the or backlog relative to what we’re going to ship. The typical shipping cycle in that business is roughly three weeks from order. So we literally get an order, we ship it three weeks later. And so, we’re sort of basing our forecast on trend analysis and talking to the customers. And so, coming off such a strongly negative year last year, we’re just being very cautious this year. As I said in my prepared remarks, in the script actually so far this year business is picking up nicely, orders exceeded our expectations in the first quarter and nothing has changed going into the second quarter. So, we think, we’re on a come back trail to certainly do substantially better than last year. Also, because we have a tremendous amount of intellectual property there, it was really to see to one of the key reasons why Tessera bought the operation when it was Digital Optics Corporation is tremendous intellectual property related to creating certain types of lens systems. We’re searching for new markets to apply this technology to. And even though I’ve got nothing to concretely report to you today, we certainly have some concrete signals in the market that maybe there are some attractive new markets that we can address with those capabilities. They would manifest themselves as products and they would allow that division and they grow back to sort of the historical range you referenced or maybe even exceed that in the future. But I’m not making that as a forecast. I’m just trying to be responsive to your question. So, may I summarize, I’ve been kind of long-winded on that. So we see a very strong snapback in capital spending in the semiconductor, capital equipment, lithography area, as well as, communications. We’re being cautious because we don’t have a lot of long-term visibility and considering we come off a bad year next year but we have no reason to believe that we’re not going to have a fruitful year there this year. And third, we are seeking new markets for that technology and have some signs that we may succeed in expanding the total available served market for that division.

Okay. That’s very helpful. Thank you. Second question pertains to some of the commentary around the broader kind of Imaging & Optics business relative to a product versus licensing strategy. I’m assuming that, as you’re talking about the greater mix between products and licenses, you’re also including, since you referenced it at least at some point, the idea of that fabless model relative to some of the image enhancement IP. If we think about kind of a discrete device coming out of a fab, in what form are you envisioning this product being? Are you somehow going to be an add-on to a sensor product? Will this be some type of discrete controller IC? How should we think about what that future kind of product strategy might include?

Okay. That’s a great question. So we already are either shipping or will be shipping soon as part of image sensor processor or application processors that others have taking various segments of our technology, our logarithms, incorporate them in their chips and as those chips ship, we get a fixed, so those would show up in royalties.

Right.

We get a royalty per chip. So that, actually, we have achieved that to some degree, we’d certainly like to expand that horizon. But I think what I was referring to more would be the sense that a lot of things had to come together to create this huge and successful licensing business that we enjoy over on the Micro-electronics side. And it’s a very high volume commodity like market that because we were fortunate in licensing some of the leaders, the entire supply chain got behind it and licensed with us. And to make that happen again in another business, it’s very difficult. And so, and also, if you need a, these huge unit volumes to be successful then it limits how many markets that you can really address. So as we’ve been looking at Imaging & Optics and evaluating all of the opportunities that confronting us, which there are many and how we can address them more flexibly perhaps than we have in the past, if we stuck strictly to a licensing model whether it was embedded in the chip or not, it would limit the markets that we would be able to address because you need a certain amount of scale to make licensing a viable economic activity. Whereas if you’re shipping a product or you’re closer to shipping a product, you don’t need -- you can participate in smaller markets, get a bigger chunk of the revenue, be closer to the customer, not be a subject to the vagaries of the supply chain as we sometimes are when someone else misses a schedule and we have little control over it. And so, as we’ve been evaluating that, we see opportunities to ship products with very high gross profit margins, a lot of intellectual property in them but instead of licensing somebody, we would actually ship them a product. Now, I would say you that is what we do in micro optics. We ship lens systems. There’s a tremendous amount of intellectual property associated with those lens systems, therefore, there’s a limited amount of competition and as a result we have very good, I would say excellent gross profit margins.

Okay. So, yeah, I understand all of that. My sense is though, as you try to think about what that actual discrete product would be, say, for instance, the build materials of a mobile handset or some other mobile platform. Are you talking about licensing IP from someone else and building for instance some type of sensor product? Are you talking about being in the processor business, I think that’s more of what I’m getting at?

Yeah. We can – I can see situation where we, yes…

How should we think about what the product guidance will look like several years out?

Yeah. Great question. So I can see us being more in the former than the latter.

Okay. Okay. All right. That’s helpful. Thank you.

Yes. You’re welcome.

(Operator Instructions) You next question comes from Michael Cohen with MDC Financial.

Thank. I was wondering if you could answer, give us an update on anything that’s going on with Amkor and if there’s any remaining arbitrations before the International Chamber of Commerce?

Yeah. Thank you for the question. I’m going to ask our General Counsel, Barney Cassidy, to answer that question.

Hi. Thanks. In the quarter, we had a ruling from the tribunal in the Amkor versus Tessera case. And essentially the tribunal decided after some briefing from the parties to break the case into two phases. The first phase will have a short hearing, a two-day hearing in September that will -- at that point we’ll address whether or not the previous arbitrations’ orders are being adhered to properly. And the main part of the hearing or main part of the trial will occur next year, August 15th is the date that has now been set in 2011. Recall that the last arbitration took three years. I see no reason to predict a shorter arbitration this time around.

So the timeframe when you think finality would happen, it sounds like the end of 2011 or longer?

Longer.

Okay. Great. That’s very helpful. Thank you.

Operator, are there any other question.

There are no questions at this time, sir. Are there any additional remarks?

No. Thank you very much, everyone, for attending our call. We look forward to speaking with you sometime in the future and that’s the end of our call for today. Thank you very much.