Tessera (TSRA) 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50460

_______________________________________________________________

TESSERA TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

_______________________________________________________________

Delaware	16-1620029
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
3025 Orchard Parkway, San Jose, California	95134
(Address of Principal Executive Offices)	(Zip Code)

(408) 321-6000

(Registrant’s Telephone Number, Including Area Code)

_______________________________________________________________

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

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).    Yes   x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

As of April 12, 2013, 52,761,636 shares of the registrant’s common stock were outstanding.

TESSERA TECHNOLOGIES, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Comprehensive Loss – Three Months Ended March 31, 2013 and 2012	5
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2013 and 2012	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
	PART II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
Signatures		71
Exhibit Index

2

PART I—FINANCIAL INFORMATION

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)

(unaudited)

	March 31, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	73,736		$	103,802
Short-term investments	328,977			338,801
Accounts receivable, net of allowance for doubtful accounts of $43 at each period end	5,048			11,595
Inventories	1,012			1,507
Short-term deferred tax assets	4,271			3,880
Other current assets	18,198			15,701
Total current assets	431,242			475,286
Property and equipment, net	68,050			72,544
Intangible assets, net	103,793			120,432
Goodwill	—			6,664
Long-term deferred tax assets	41,892			22,499
Other assets	6,873			7,677
Total assets	$	651,850		$	705,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,743		$	14,437
Accrued legal fees	11,840			11,726
Accrued liabilities	18,152			22,140
Deferred revenue	5,579			4,869
Total current liabilities	46,314			53,172
Long-term deferred tax liabilities	—			3,102
Other long-term liabilities	6,010			6,403
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000 shares authorized and no shares issued and outstanding	—			—
Common stock: $0.001 par value; 150,000 shares authorized; 53,356 and 52,947 shares issued, respectively, and 52,700 and 52,293 shares outstanding, respectively	53			53
Additional paid-in capital	487,339			480,347
Treasury stock at cost; 656 and 654 shares on common stock at each period end, respectively	(10,681		)	(10,642		)
Accumulated other comprehensive income	147			119
Retained earnings	122,668			172,548
Total stockholders’ equity	599,526			642,425
Total liabilities and stockholders’ equity	$	651,850		$	705,102

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	March 31, 2013			March 31, 2012
Revenues:
Royalty and license fees	$	26,715		$	43,264
Past production payments	1,500			—
Product and service revenues	2,909			3,409
Total revenues	31,124			46,673
Operating expenses:
Cost of revenues	7,942			5,760
Research, development and other related costs	25,949			23,445
Selling, general and administrative	25,250			24,611
Litigation expense	14,081			3,492
Restructuring, impairment of long-lived assets and other charges	15,755			—
Impairment of goodwill	6,664			—
Total operating expenses	95,641			57,308
Operating loss	(64,517		)	(10,635		)
Other income and expense, net	336			668
Loss before taxes	(64,181		)	(9,967		)
Benefit from income taxes	(19,558		)	(1,879		)
Net loss	$	(44,623	)	$	(8,088	)
Basic and diluted net loss per share:
Net loss per share-basic	$	(0.85	)	$	(0.16	)
Net loss per share-diluted	$	(0.85	)	$	(0.16	)
Cash dividends declared per share	$	0.10		$	0.10
Weighted average number of shares used in per share calculations-basic	52,471			51,738
Weighted average number of shares used in per share calculations-diluted	52,471			51,738

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended
	March 31, 2013			March 31, 2012
Net loss	$	(44,623	)	$	(8,088	)
Other comprehensive income:
Net unrealized gains (losses) on available-for-securities, net of tax	28			259
Other comprehensive income	28			259
Comprehensive loss	$	(44,595	)	$	(7,829	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31, 2013			March 31, 2012
Cash flows from operating activities:
Net loss	$	(44,623	)	$	(8,088	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment	4,916			2,684
Amortization of intangible assets	6,389			6,373
Stock-based compensation expense	2,547			4,056
Loss (gain) on disposal of property and equipment, net	(64		)	5
Impairment of goodwill	6,664			—
Non-cash restructuring, impairment of long-lived assets and other charges	13,763			—
Deferred income tax, net	(22,825		)	1
Amortization of premium/discount on investments	290			623
Changes in operating assets and liabilities:
Accounts receivable, net	6,547			679
Inventories	495			(61		)
Other assets	696			(2,020		)
Accounts payable	(341		)	(1,795		)
Accrued legal fees	114			(213		)
Accrued liabilities	(4,590		)	(5,931		)
Deferred revenue	710			2,535
Net cash used in operating activities	(29,312		)	(1,152		)
Cash flows from investing activities:
Purchases of property and equipment	(9,246		)	(1,926		)
Proceeds from sale of property and equipment	381			13
Purchases of short-term available-for-sale investments	(54,453		)	(55,623		)
Proceeds from maturities and sales of short-term and long-term investments	64,015			80,427
Purchases of intangible assets	(600		)	(2,162		)
Net cash provided by investing activities	97			20,729
Cash flows from financing activities:
Dividend paid	(5,257		)	—
Proceeds from exercise of stock options	2,415			1,553
Proceeds from employee stock purchase program	2,030			2,025
Repurchase of common stock	(39		)	—
Net cash provided by (used in) financing activities	(851		)	3,578
Net increase (decrease) in cash and cash equivalents	(30,066		)	23,155
Cash and cash equivalents at beginning of period	103,802			55,758
Cash and cash equivalents at end of period	$	73,736		$	78,913

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

TESSERA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

Tessera Technologies, Inc. (the “Company”) is a holding company with operating subsidiaries in two segments: Intellectual Property and DigitalOptics.

The Company's Intellectual Property segment, managed by Tessera Intellectual Property Corp., generates revenue from manufacturers and other implementers that use our technology. The segment includes Tessera, Inc. and Invensas Corporation (“Invensas”). Tessera, Inc. pioneered chip-scale packaging solutions, which it licenses to the semiconductor industry. Invensas develops and acquires interconnect solutions and intellectual property in areas such as mobile computing and communications, memory and data storage, and 3-D Integrated Circuit (“3DIC”) technologies.

DigitalOptics Corporation and its subsidiaries ("DOC") manage the DigitalOptics segment. DOC designs and manufactures imaging systems for smartphones, generating revenue through product sales and software license fees and royalties. DigitalOptics' expertise in optics, camera modules, Micro-Electro Mechanical Systems (“MEMS”), and image processing enable it to deliver products that expand the boundaries of smartphone photography. DOC also offers customized micro-optic lenses, which may include Diffractive Optical Elements (“DOEs”), Refractive Optical Elements (“ROEs”) and/or Integrated Micro-Optical Subassemblies (“IMOS”).

The accompanying interim unaudited condensed consolidated financial statements as of March 31, 2013 and 2012, and for the three months then ended, have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) for interim financial information. The amounts as of December 31, 2012 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on March 1, 2013 (the “Form 10-K”).

The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2013 or any future period and the Company makes no representations related thereto.

Reclassification

Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2013, as compared to the significant accounting policies described in the Form 10-K.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

Adopted

In July 2012, the Financial Accounting Standards Board ("FASB") issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, which is intended to reduce the complexity and cost of performing a quantitative test for impairment of indefinite-lived intangible assets by permitting an entity the option to perform a qualitative evaluation about the likelihood that an indefinite-lived intangible asset is impaired in order to determine whether it should calculate the fair value of the asset. The update also improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. The Company adopted this guidance in fiscal year 2013 on a prospective basis. For further information on intangible asset impairment, see Note 8 – "Goodwill and Identified Intangible Assets." The adoption of this ASU did not have a material impact on the Company’s financial statements.

7

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities, which requires an entity to include additional disclosures about financial instruments and transactions eligible for offset in the statement of financial position, as well as financial instruments subject to a master netting agreement or similar arrangement. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In February 2013, the FASB issued amendments to the FASB Accounting Standards Codification relating to the reporting of reclassifications out of accumulated other comprehensive income. The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company is required to adopt these amendments in the first quarter of fiscal year 2013 on a prospective basis. The adoption of this ASU did not have a material impact on the Company’s financial statements.

NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Accounts receivable, net consisted of the following (in thousands):

	March 31, 2013			December 31, 2012
Trade and other receivables	$	5,091		$	11,638
Allowance for doubtful accounts	(43		)	(43		)
	$	5,048		$	11,595

Inventories consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Raw materials	$	326	$	842
Work in process	211		145
Finished goods	475		520
	$	1,012	$	1,507

Other current assets consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Prepaid income taxes	$	6,016	$	5,826
Interest receivable	3,267		2,963
Assets held for sale (1)	3,189		—
Other	5,726		6,912
	$	18,198	$	15,701

(1) As a result of the planned closure of the Company's leased manufacturing facility in Zhuhai, China (the "Zhuhai Facility"), the Company recorded at fair value $3.2 million of manufacturing equipment as assets held for sale, and recognized an impairment charge of $2.3 million for the three months ended March 31, 2013. The manufacturing equipment held for sale was classified as current assets since the Company's intent is to dispose of the assets within one year and receive the proceeds from the sale within one year. See Note 6 – "Business Combinations" for more information about the planned closure of the Zhuhai Facility.

Property and equipment, net consisted of the following (in thousands):

8

	March 31, 2013			December 31, 2012
Furniture and office equipment	$	57,284		$	54,241
Production equipment	30,349			36,577
Land and buildings	21,314			21,314
Leasehold improvements	13,608			13,873
	122,555			126,005
Less: Accumulated depreciation and amortization	(54,505		)	(53,461		)
	$	68,050		$	72,544

Other assets consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Assets held for sale (1)	$	3,229	$	—
Other	3,644		7,677
	$	6,873	$	7,677

(1) The Company recorded at fair value $3.2 million for rights of manufacturing assets as held for sale, and recognized an impairment charge of $800,000 for the three months ended March 31, 2013. As discussed in Note 6 – "Business Combinations," the asset rights held for sale represent the remaining assets subject to delivery by Flextronics International Ltd. no later than March 31, 2013, which have not been so delivered as of the date of this filing.

Accrued liabilities consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Employee compensation and benefits	$	13,032	$	15,878
Intangible assets payable	500		1,100
Other	4,620		5,162
	$	18,152	$	22,140

Other long-term liabilities consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Unrecognized tax benefits	$	5,273	$	5,212
Other	737		1,191
	$	6,010	$	6,403

Accumulated other comprehensive income consisted of the following (in thousands):

	March 31, 2013		December 31, 2012
Unrealized gain on available-for-sale securities, net of tax	$	147	$	119
	$	147	$	119

NOTE 5 – FINANCIAL INSTRUMENTS

The following is a summary of marketable securities at March 31, 2013 and December 31, 2012 (in thousands):

9

	March 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Values
Available-for-sale securities
Corporate bonds and notes	$	178,348	$	143	$	(69	)	$	178,422
Municipal bonds and notes	109,194		65		(5		)	109,254
Commercial paper	28,573		11		—			28,584
Treasury and agency notes and bills	16,814		5		(5		)	16,814
Money market funds	22,476		—		—			22,476
Certificate of deposit	3,500		2		—			3,502
Total available-for-sale securities	$	358,905	$	226	$	(79	)	$	359,052
Reported in:
Cash and cash equivalents								$	30,075
Short-term investments								328,977
Total marketable securities								$	359,052

	December 31, 2012
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Values
Available-for-sale securities
Corporate bonds and notes	$	171,485	$	177	$	(98	)	$	171,564
Municipal bonds and notes	110,185		55		(32		)	110,208
Treasury and agency notes and bills	29,050		12		(4		)	29,058
Commercial paper	46,135		12		(4		)	46,143
Money market funds	34,106		—		—			34,106
Certificate of deposit	4,503		1		—			4,504
Total available-for-sale securities	$	395,464	$	257	$	(138	)	$	395,583
Reported in:
Cash and cash equivalents								$	56,782
Short-term investments								338,801
Total marketable securities								$	395,583

At March 31, 2013 and December 31, 2012, the Company had $402.7 million and $442.6 million, respectively, in cash, cash equivalents and short-term investments. The majority of these amounts were held in marketable securities, as shown above. The remaining balance of $43.7 million and $47.0 million at March 31, 2013 and December 31, 2012, respectively, was cash held in operating accounts not included in the tables above.

The gross realized gains and losses on sales of marketable securities were not significant during the three months ended March 31, 2013 and 2012.

Unrealized gains (net of unrealized losses) of $0.1 million, net of tax, as of March 31, 2013, were related to a temporary increase in value of the remaining available-for-sale securities and were due primarily to changes in interest rates and market and credit conditions of the underlying securities. Certain investments with a temporary decline in value are not considered to be other-than-temporarily impaired as of March 31, 2013 because the Company has the ability to hold these investments to allow for recovery, does not anticipate having to sell these securities with unrealized losses and continues to receive interest at the maximum contractual rate. For the three months ended March 31, 2013 and 2012, respectively, the Company did not record any impairment charges.

The following table summarizes the fair value and gross unrealized losses related to individual available-for-sale securities at March 31, 2013 and December 31, 2012, which have been in a continuous unrealized loss position, aggregated by investment category and length of time (in thousands):

10

March 31, 2013	Less Than 12 Months					12 Months or More				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate bonds and notes	$	82,208	$	(69	)	$	—	$	—	$	82,208	$	(69	)
Municipal bonds and notes	13,860		(5		)	—		—		13,860		(5		)
Treasury and agency notes and bills	6,497		(5		)	—		—		6,497		(5		)
Commercial paper	2,100		—			—				2,100		—
Total	$	104,665	$	(79	)	$	—	$	—	$	104,665	$	(79	)

December 31, 2012	Less Than 12 Months					12 Months or More				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate bonds and notes	$	60,620	$	(98	)	$	—	$	—	$	60,620	$	(98	)
Municipal bonds and notes	48,149		(32		)	—		—		48,149		(32		)
Commercial paper	10,567		(4		)	—		—		10,567		(4		)
Certificate of deposit	3,500		(1		)					3,500		(1		)
Treasury and agency notes and bills	2,997		(3		)	—		—		2,997		(3		)
Total	$	125,833	$	(138	)	$	—	$	—	$	125,833	$	(138	)

The estimated fair value of marketable securities by contractual maturity at March 31, 2013 is shown below (in thousands). Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

	Estimated Fair Value
Due in one year or less	$	261,644
Due in one to two years	97,408
Total	$	359,052

NOTE 6 – BUSINESS COMBINATION

Vista Point Technologies

In June 2012, DOC, a subsidiary of Tessera Technologies, Inc., completed its acquisition of certain assets of Vista Point Technologies, a Tier One qualified camera module manufacturing business, from Flextronics International Ltd. for consideration of $29.0 million, net of $11.9 million cash acquired (the "Zhuhai Transaction"). Approximately $7.6 million of the consideration was placed in escrow at the initial closing, of which, approximately $4.1 million remains subject to delivery of certain additional assets by Flextronics International Ltd. no later than March 31, 2013 and $2.8 million of which was released upon the delivery of certain additional assets in the fourth quarter of 2012. As of the date of this filing, the $4.1 million in assets mentioned above have not been delivered. The related $4.1 million remains in escrow and the Company is currently negotiating a settlement to resolve this matter.

As part of the Zhuhai Transaction, DigitalOptics Corporation Technology Zhuhai Limited (formally known as Vista Point Electronic Technologies (Zhuhai) Co. Ltd.), a company organized under the laws of the People's Republic of China, was acquired from Flextronics International Ltd. and became an indirect wholly owned subsidiary of the Company. The business combination transaction was accounted for using the acquisition method of accounting, with the results of the acquisition included in the DigitalOptics segment as of the acquisition date. This contributed to a purchase price in excess of the fair value of the underlying net assets and identified intangible assets acquired from Flextronics International Ltd. and, as a result, the Company recorded goodwill in connection with this transaction.

Purchase price allocation

In accordance with the accounting guidance on business combinations, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The allocation of the purchase price was based upon a valuation and the estimates and assumptions used are subject to change. Based upon the fair values acquired, the purchase price allocation is as follows (in thousands):

11

	Amount		Estimated Useful Life (Years)
Net tangible assets:
Property and equipment, net	$	11,196	1-7
Inventory	392		N/A
Other current assets	1,050		N/A
Other assets	7,853		N/A
	20,491
Identified intangible assets:
Patents/core technology	900		14
Customer relationships	900		3
Goodwill	6,664		N/A
	8,464
Total purchase price	$	28,955

Approximately $20.5 million has been allocated to acquired net tangible assets consisting of property and equipment delivered, and $4.1 million of property and equipment (included in other assets) to be delivered. Approximately $1.8 million has been allocated to amortizable intangible assets acquired.

At the time of the Zhuhai Transaction, the Zhuhai Transaction was strategic to the Company as it intended to use the acquired assets and related manufacturing business to help build the DigitalOptics segment into a supplier of camera modules in the mobile phone market. However, in March 2013, the Company determined the DigitalOptics business was to be restructured and announced its plans to close the Zhuhai Facility, the lease to which DOC acquired in the Zhuhai Transaction, and announced the consolidation of its manufacturing capabilities to Taiwan. By closing the Zhuhai Facility, the Company's long-term strategy is to no longer supply the whole camera module but the Company will manufacture whole camera modules in limited quantities in the near term. The Company's primary focus will be on developing the mems|cam actuator, the imaging software and user applications, and on manufacturing and supplying only the lens barrel. High volume camera module production will be outsourced to a third party. As a result of this restructuring, certain assets acquired in the transaction noted above where considered impaired or written off entirely. For further discussion of affected assets, see Note 4 – "Composition of Certain Financial Statement Captions" and Note 8 – "Goodwill and Identified Intangible Assets."

NOTE 7 – FAIR VALUE

The Company follows the authoritative guidance for fair value measurements and the fair value option for financial assets and financial liabilities. The guidance for fair value measurements establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. The guidance for the fair value option for financial assets and financial liabilities provides companies the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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The following is a list of the Company’s assets required to be measured at fair value on a recurring basis and where they were classified within the hierarchy as of March 31, 2013 (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Marketable Securities
Money market funds (1)	$	22,476	$	22,476	$	—	$	—
Corporate bonds and notes (2)	178,422		—		178,422		—
Municipal bonds and notes (2)	109,254		—		109,254		—
Treasury and agency notes and bills (2)	16,814		—		16,814		—
Certificate of deposit (2)	3,502		—		3,502		—
Commercial paper (3)	28,584		—		28,584		—
Total Assets	$	359,052	$	22,476	$	336,576	$	—

The following footnotes indicate where the noted items were recorded in the Condensed Consolidated Balance Sheet at March 31, 2013:

(1) Reported as cash and cash equivalents.

(2) Reported as short-term investments.

(3) Reported as either cash and cash equivalents or short-term investments.

The following is a list of the Company’s assets required to be measured at fair value on a recurring basis and where they were classified within the hierarchy as of December 31, 2012 (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level  1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Marketable Securities
Money market funds (1)	$	34,106	$	34,106	$	—	$	—
Corporate bonds and notes (2)	171,564		—		171,564		—
Municipal bonds and notes (2)	110,208		—		110,208		—
Treasury and agency notes and bills (2)	29,058		—		29,058		—
Certificate of deposit (2)	4,504		—		4,504		—
Commercial paper (3)	46,143		—		46,143		—
Total Assets	$	395,583	$	34,106	$	361,477	$	—

The following footnotes indicate where the noted items were recorded in the Condensed Consolidated Balance Sheet at December 31, 2012:

(1) Reported as cash and cash equivalents.

(2) Reported as short-term investments.

(3) Reported as either cash and cash equivalents or short-term investments.

Nonrecurring Fair Value Measurements

The Company measures certain assets at fair value on a nonrecurring basis. These assets include approximately $18.2 million of property and equipment and $1.8 million in intangible assets that were valued at fair value as part of the Zhuhai Transaction described in Note 6 above. For certain of the property and equipment, the fair value was determined using a cost approach based on the condition, market and functionality of these assets, including physical depreciation and certain obsolescence

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adjustments. The fair value for these acquired intangible assets was determined using the cost approach and discounted cash flow method. As a result, at December 31, 2012, $0.3 million of property and equipment and the $1.8 million of intangible assets are classified as Level 3. At March 31, 2013, the Company revalued $3.2 million in assets as a result of the planned closure of the Zhuhai Facility. The fair value was determined by using market quotes for these specific assets.

NOTE 8 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The changes to the carrying value of goodwill as of and during the three months ended March 31, 2013, is reflected below (in thousands):

	DigitalOptics
Balance at December 31, 2012	$	6,664
Impairment of goodwill	(6,664		)
Balance at March 31, 2013	$	—

In March 2013, the Company revised its business strategy for the DigitalOptics business to concentrate its manufacturing efforts on the lens barrel, rather than the whole camera module. This revised strategy made the Zhuhai Facility unnecessary. The Company announced the closure of the Zhuhai Facility in March 2013. This decision triggered an impairment review of the related goodwill and purchased intangible assets recorded in connection with the Zhuhai Transaction (see Note 6 – "Business Combinations," for additional detail regarding the Zhuhai Transaction). As a result of the Company's impairment assessment, completed in the first quarter of 2013, the Company recorded an impairment charge to goodwill of $6.7 million, all of which was included in the DigitalOptics segment.

Identified intangible assets consisted of the following (in thousands):

		March 31, 2013							December 31, 2012
	Average Life (Years)	Gross Assets		Accumulated Amortization			Net		Gross Assets		Accumulated Amortization			Net
Acquired patents / core technology (1)	3-15	$	135,030	$	(41,875	)	$	93,155	$	137,728	$	(38,874	)	$	98,854
Existing technology (2)	5-10	28,434		(22,593		)	5,841		54,196		(38,562		)	15,634
Customer contracts (3)	3-9	11,900		(8,197		)	3,703		12,800		(8,033		)	4,767
Trade name	4-10	3,620		(2,526		)	1,094		3,620		(2,443		)	1,177
Non-competition agreements	2	—		—			—		1,400		(1,400		)	—
Assembled workforce	4	—		—			—		300		(300		)	—
		$	178,984	$	(75,191	)	$	103,793	$	210,044	$	(89,612	)	$	120,432

(1) The Company recorded an intangible asset impairment charge of $852,000 in the three months ended March 31, 2013 relating to patents acquired from the Zhuhai Transaction. As a result of the shutdown of the Zhuhai Facility, the Company determined that the benefits of these patents would not be realized. In addition, the Company recorded a $400,000 charge in the three months ended March 31, 2013 due to abandonment of acquired patents which caused a revision of the useful life estimate of these patent assets thus fully impairing them.

(2) The Company incurred an $8.3 million charge in the three months ended March 31, 2013 due to the abandonment of existing technology which caused a revision of the useful life estimate of these technology assets thus fully impairing them.

(3) The Company recorded intangible asset impairment charge of $675,000 relating to customer relationships acquired from the Zhuhai Transaction. The Company determined that there was no future value for the customer relationships as a result of the closure of the Zhuhai Facility.

Amortization expense for the three months ended March 31, 2013 and 2012 amounted to $6.4 million. As of March 31, 2013, the estimated future amortization expense of intangible assets is as follows (in thousands):

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2013 (remaining 9 months)	$	16,115
2014	19,710
2015	18,718
2016	17,495
2017	14,531
Thereafter	17,224
	$	103,793

NOTE 9 – NET LOSS PER SHARE

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

	Three Months Ended
	March 31, 2013			March 31, 2012
Numerator:
Net loss	$	(44,623	)	$	(8,088	)
Denominator:
Weighted average common shares outstanding	52,531			51,770
Less: Unvested common shares subject to repurchase	(60		)	(32		)
Total shares-basic	52,471			51,738
Effect of dilutive securities:
Stock awards	—			—
Restricted stock awards and units	—			—
Total shares-diluted	$	52,471		$	51,738
Net loss per share-basic	$	(0.85	)	$	(0.16	)
Net loss per share-diluted	$	(0.85	)	$	(0.16	)

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards that are subject to repurchase. Diluted net income (loss) per share is computed using the treasury stock method to calculate the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential dilutive common shares include unvested restricted stock awards and units and incremental common shares issuable upon the exercise of stock options, less shares from assumed proceeds. The assumed proceeds calculation includes actual proceeds to be received from the employee upon exercise, the average unrecognized stock compensation cost during the period and any tax benefits that will be credited upon exercise to additional paid-in capital.

For the three months ended March 31, 2013 and March 31, 2012, 5.4 million shares and 5.8 million shares, respectively, of common stock, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive.

NOTE 10 – STOCKHOLDERS�� EQUITY

Stock Repurchase Programs

In August 2007, the Company’s Board of Directors (“the Board”) authorized a plan to repurchase up to a maximum total of $100.0 million of the Company’s outstanding shares of common stock dependent on market conditions, share price and other factors. As of March 31, 2013 and December 31, 2012, the Company had repurchased a total of approximately 645,000 shares of common stock since inception of the plan, at an average price of $16.26 per share for a total cost of $10.5 million. The shares repurchased are recorded as treasury stock and are accounted for under the cost method. No expiration date has been specified for this plan. As of March 31, 2013, the total amount available for repurchase was $89.5 million. The Company may continue to execute authorized repurchases from time to time under the plan.

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Stock Option Plans

The 1996 Plan and the 1999 Plan

In December 1996, the Board adopted the 1996 Stock Option Plan (“1996 Plan”). In February 1999, the Board adopted the 1999 Stock Option Plan (“1999 Plan”) which was approved by the stockholders in May 1999. Under the 1996 Plan and the 1999 Plan, incentive stock options may be granted to the employees of the Company or its subsidiaries at an exercise price of no less than 100% of the fair value on the date of grant, and nonstatutory stock options may be granted to the employees of the Company or its subsidiaries, non-employee directors and consultants at an exercise price of no less than 85% of the fair value. In both cases, when the optionees own stock representing more than 10% of the voting power of all classes of stock of the Company, the exercise price shall be no less than 110% of the fair value on the date of grant. For options granted with an exercise price below fair market value, a stock-based compensation charge has been determined. Options granted under these plans generally have a term of ten years from the date of grant and vest over a four-year period. Shares issued in connection with the exercise of unvested options are subject to repurchase by the Company until such options vest. After February 1999, no further options were granted from the 1996 Plan. After December 2000, no further options were granted from the 1999 Plan. The Company has no intention of issuing additional grants under these plans. As of March 31, 2013, there were no shares reserved for grant under these plans and only cancellations under the 1999 Plan are recorded as available for grant. Based on a Board decision, cancellations under the 1996 Plan are not considered available for grant.

The 2003 Plan

In February 2003, the Board adopted and the Company’s stockholders approved the 2003 Equity Incentive Plan (“2003 Plan”). Under the 2003 Plan, incentive stock options may be granted to the employees of the Company or its subsidiaries at an exercise price of no less than 100% of the fair value on the date of grant, and nonstatutory stock options may be granted to the employees of the Company or its subsidiaries, non-employee directors and consultants at an exercise price of no less than 85% of the fair value. In both cases, when the optionees own stock representing more than 10% of the voting power of all classes of stock of the Company, the exercise price shall be no less than 110% of the fair value on the date of grant. Options, restricted stock awards, and restricted stock units granted under this plan generally have a term of ten years from the date of grant and vest over a four-year period. Restricted stock, performance awards, dividend equivalents, deferred stock, stock payments and stock appreciation rights may also be granted under the 2003 Plan either alone, in addition to, or in tandem with any options granted thereunder. Restricted stock awards and units are full-value awards that reduce the number of shares reserved for grant under this plan by one and one-half shares for each share granted. The vesting criteria for restricted stock awards and units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years. As of March 31, 2013, there were 4,228,000 shares reserved for future grant under this plan.

A summary of the stock option activity is presented below (in thousands, except per share amounts):

	Shares Outstanding
	Number of Shares		Weighted Average Exercise Price Per Share
Balance at December 31, 2012	7,099		$	17.80
Options granted	270		$	17.36
Options exercised	(164	)	$	14.73
Options canceled / forfeited / expired	(139	)	$	18.98
Balance at March 31, 2013	7,066		$	17.83

Information with respect to outstanding restricted stock awards and units as of March 31, 2013 is as follows (in thousands, except per share amounts):

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	Restricted Stock
	Number of Shares Subject to Time- based Vesting		Number of Shares Subject to Performance- based Vesting		Total Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2012	715		116		831		$	16.36
Awards and units granted	80		108		188		$	17.77
Awards and units vested / earned	(25	)	(27	)	(52	)	$	18.63
Awards and units canceled / forfeited	(62	)	(81	)	(143	)	$	17.85
Balance at March 31, 2013	708		116		824		$	16.27

Performance Awards and Units

Performance awards and units may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant. The value and the vesting of such performance awards and units are generally linked to one or more performance goals or other specific performance goals determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and range from zero to 100 percent of the grant.

Employee Stock Purchase Plans

In August 2003, the Board adopted the 2003 Employee Stock Purchase Plan (the "ESPP"), which was approved by the Company’s stockholders in September 2003 and became effective February 1, 2004. The Company initially reserved 200,000 shares of common stock for issuance under the 2003 Employee Stock Purchase Plan. The reserve will automatically increase on the first day of each fiscal year during the term of the 2003 Employee Stock Purchase Plan by an amount equal to the lesser of (1) 200,000 shares, (2) 1.0% of the Company’s outstanding shares on such date or (3) a lesser amount determined by the Board. Subsequently, the Board adopted the International Employee Stock Purchase Plan (the "International ESPP") in June 2008 which reserves 200,000 shares of common stock for issuance under the International ESPP. The ESPP and International ESPP are designed to allow eligible employees residing in the U.S. or internationally to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions. In January 2013, the Board of Directors amended the ESPP and the International ESPP to provide for perpetual plans, without the automatic increase of the reserve for the ESPP. The Company will submit the amended ESPP and International ESPP to the Company's stockholders to approve at the Company's 2013 annual meeting of stockholders.

The ESPP and the International ESPP have a series of consecutive, overlapping 24-month offering periods, commencing February 1 and August 1 of each year. Individuals who own less than 5% of the Company’s voting stock, are scheduled to work more than 20 hours per week and whose customary employment is for more than five months in any calendar year may join an offering period on the first day of the offering period or the beginning of any semi-annual purchase period within that period. Individuals who become eligible employees after the start date of an offering period may join the ESPP or International ESPP, as applicable, at the beginning of any subsequent semi-annual purchase period.

Participants may contribute up to 20% of their cash earnings through payroll deductions, and the accumulated deductions will apply to the purchase of shares on each semi-annual purchase date. The purchase price per share will equal 85% of the fair market value per share on the participant’s entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date.

An eligible employee’s right to buy shares of the Company’s common stock under the ESPP or the International ESPP may not accrue at a rate in excess of $25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period.

If the fair market value per share of the Company's common stock on any purchase date is less than the fair market value on the first trading day of that offering period, then that offering period will immediately terminate and a new twenty-four month offering period and a new six-month purchase period will commence the day following that purchase date. All participants in the terminated offering will be transferred to the new offering period.

In the event of a proposed sale of all or substantially all of the Company’s assets, or merger with or into another company, the outstanding rights under the ESPP and International ESPP will be assumed or an equivalent right substituted by the successor company or its parent or subsidiary. If the successor company or its parent refuses to assume the outstanding rights or substitute an equivalent right, then all outstanding purchase rights will automatically be exercised prior to the effective date of the transaction. The purchase price will equal 85% of the market value per share on the participant’s entry date into the offering

17

period in which an acquisition occurs or, if lower, 85% of the fair market value per share on the date the purchase rights are exercised.

The ESPP will terminate no later than the tenth anniversary of the ESPP’s initial adoption by the Board if the amended ESPP is not approved at the 2013 annual meeting of stockholders. The International ESPP will terminate immediately if the amended International ESPP is not approved at the 2013 annual meeting of stockholders. If the ESPP and International ESPP are approved at the 2013 annual meeting of stockholders, then they will be in effect until their respective share reserves are exhausted, unless earlier terminated by the Board.

As of March 31, 2013, there were approximately 327,000 shares reserved for grant under the ESPP and the International ESPP, collectively.

NOTE 11 – STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation expense for the three months ended March 31, 2013 and 2012 is as follows (in thousands):

	Three Months Ended
	March 31, 2013		March 31, 2012
Cost of revenues	$	54	$	150
Research, development and other related costs	1,089		1,712
Selling, general and administrative	1,404		2,194
Total stock-based compensation expense	$	2,547	$	4,056

Stock-based compensation expense categorized by various equity components for the three months ended March 31, 2013 and 2012 is summarized in the table below (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Employee stock options	$	2,036		$	2,762
Restricted stock awards and units	(26		)	790
Employee stock purchase plan	537			504
Total stock-based compensation expense	$	2,547		$	4,056

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of stock-based awards. The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield. The Company’s determinations of these assumptions are outlined below.

Expected life – The expected life assumption is based on analysis of the Company’s historical employee exercise patterns. The expected life of options granted under the ESPP represents the offering period of two years.

Volatility – Volatility is calculated using the historical volatility of the Company’s common stock for a term consistent with the expected life. Historical volatility of the Company’s common stock is also utilized for the ESPP.

Risk-free interest rate – The risk-free interest rate assumption is based on the U.S. Treasury rate for issues with remaining terms similar to the expected life of the options.

Dividend yield – Expected dividend yield is calculated by annualizing the cash dividend declared by the Board for the current quarter and dividing that result by the average closing price of the Company’s common stock for the quarter. Cash dividends are not paid on options, restricted stock units or unvested restricted stock awards.

In addition, the Company estimates forfeiture rates. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Historical data is used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

The following assumptions were used to value the options granted:

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	Three Months Ended
	March 31, 2013		March 31, 2012
Expected life (in years)	5.0		3.7
Risk-free interest rate	0.8	%	0.8	%
Dividend yield	2.3	%	2.2	%
Expected volatility	59.5	%	66.4	%

NOTE 12 – INCOME TAXES

The benefit from income taxes for the three months ended March 31, 2013 was $19.6 million and was largely comprised of a tax benefit for domestic and certain foreign losses as offset by foreign withholding and income taxes and the impairment of nondeductible goodwill. The benefit from income taxes for the three months ended March 31, 2012 was $1.9 million and was largely comprised of a tax benefit for domestic losses as offset by foreign withholding and income taxes. The Company’s provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, and the tax effect of discrete items occurring during the period. The tax for jurisdictions for which a loss is expected and no benefit can be realized for the year is based on actual taxes and tax reserves for the quarter. The increase in the income tax benefit for the three months ended March 31, 2013 as compared to the same period in the prior year is largely attributable to the greater domestic loss incurred in the current quarter and a benefit generated from the prior year’s domestic research tax credit offset by an increase in valuation allowance related to state and foreign deferred tax assets and the impairment of nondeductible goodwill for which the Company does not receive a tax benefit.

As of March 31, 2013, unrecognized tax benefits approximated $5.1 million, of which $3.6 million would affect the effective tax rate if recognized. At December 31, 2012, unrecognized tax benefits were $4.8 million of which $3.6 million would affect the effective tax rate if recognized. It is reasonably possible that unrecognized tax benefits may decrease by a range of $2.3 million to $2.4 million in the next 12 months due to the expected lapse of statutes of limitation relating to the federal research tax credit, foreign tax incentives and the conclusion of a foreign tax examination.

It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the three months ended March 31, 2013 and 2012, the Company recognized an insignificant amount of interest and penalties related to unrecognized tax benefits. At both March 31, 2013 and December 31, 2012, the Company had accrued $0.5 million of interest and penalties related to unrecognized tax benefits.

At March 31, 2013, the Company’s 2007 through 2012 tax years were open and subject to potential examination in one or more jurisdictions. In addition, in the U.S., any net operating losses or credits that were generated in prior years but utilized in an open year may also be subject to examination. The Company is currently under Internal Revenue Service examination related to its 2008 and 2009 tax returns and under review in Israel on a 2007 subsidiary liquidation. The Company is not currently under any domestic state income tax examination.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Lease and Purchase Commitments

The Company leases office and research facilities and office equipment under operating leases which expire at various dates through 2018. The amounts reflected in the table below are for the aggregate future minimum lease payments under non-cancelable facility and equipment operating leases. Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term. Rent expense for the three months ended March 31, 2013 and 2012, was $1.2 million and $0.8 million, respectively.

In addition, the Company has purchase obligations containing non-cancelable, nonrefundable payments terms with third parties to purchase services.

As of March 31, 2013, future minimum lease payments and purchase obligations are as follows (in thousands):

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	Lease Obligations		Purchase Obligations		Total
2013 (remaining 9 months)	$	1,935	$	1,335	$	3,270
2014	3,710		—		3,710
2015	2,556		—		2,556
2016	1,633		—		1,633
2017	1,201		—		1,201
Thereafter	240		—		240
	$	11,275	$	1,335	$	12,610

Contingencies

For all legal proceedings described below, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently unable to predict the final outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. An adverse decision in any of these proceedings could significantly harm the Company’s business and consolidated financial position, results of operations or cash flows.

Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4: 10-00945-CW (N.D. Cal.) and U.S. Court of Appeals for the Federal Circuit Case No. 2010-1489

On March 5, 2010, Powertech Technology, Inc. ("PTI") filed a complaint against Tessera, Inc. in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of Tessera, Inc.’s U.S. Patent No. 5,663,106. On March 22, 2010, the case was related to Siliconware Precision Industries, Co., Ltd v. Tessera, Inc. , Civil Action No. 4:08-cv-03667-CW (N.D. Cal.), and assigned to the judge presiding over that action.

On April 1, 2010, Tessera, Inc. filed a motion to dismiss the complaint for lack of subject matter jurisdiction. On June 1, 2010, the judge granted Tessera, Inc.’s motion, and dismissed the action.

On June 29, 2010, PTI filed a motion seeking reconsideration of the June 1, 2010 order dismissing the action. On August 3, 2010, PTI’s motion was denied.

On August 6, 2010, PTI filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit. On September 30, 2011, the Federal Circuit issued an opinion reversing and remanding the case to the district court, determining that there was declaratory judgment jurisdiction. Tessera, Inc. filed a petition for rehearing on November 14, 2011. The Federal Circuit denied Tessera, Inc.’s petition for rehearing on January 5, 2012. On January 19, 2012, the Federal Circuit issued its judgment and the case was remanded to the district court. On December 15, 2011, the district court case was related to Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4:11-06121-CW (N.D. Cal.), discussed below.

The district court held a Case Management Conference on January 4, 2012. The court issued a Minute Order and Case Management Order dated January 4, 2012, setting, among other things, a fact discovery cut-off date of January 18, 2013, and a trial date of April 7, 2014.

On May 16, 2012, the Court entered an order that denied PTI’s motion to strike as to one of Tessera, Inc.’s affirmative defenses, granted PTI’s motion to strike with leave to amend as to several other affirmative defenses asserted by Tessera, Inc., and granted PTI’s motion to strike as to one of Tessera, Inc.’s affirmative defenses, stating that Tessera, Inc. may move to amend to add that defense if circumstances change. Tessera, Inc. filed an amended answer on May 29, 2012.

On June 29, 2012, PTI sent a letter to Tessera, Inc. purporting to terminate the TCC License Agreement as of June 30, 2012.

On July 30, 2012, Tessera, Inc. provided PTI with a covenant not to sue, or otherwise hold liable, PTI or its customers under certain claims of U.S. Patent No. 5,663,106 in connection with certain PTI-manufactured products.

On August 9, 2012, Tessera, Inc. moved for summary judgment on the ground that as a matter of law no case or controversy exists sufficient to support PTI’s claims because of the covenant and because the parties’ rights and obligations do not turn on infringement or validity of the Tessera, Inc. patent that forms the basis of PTI’s claims.

On September 18, 2012, the Patent Office issued an ex parte reexamination certificate in which certain original claims were cancelled from U.S. Patent No. 5,663,106, and certain new claims were added.

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On October 1, 2012, Tessera, Inc. provided PTI with a supplemental covenant not to sue, which among other things, extended the covenant to PTI’s subsidiaries and made clear that Tessera, Inc. will not contend that PTI is obligated to pay royalties based on infringement of U.S. Patent No. 5,663,106.

On October 2, 2012, PTI filed a motion for entry of judgment under Federal Rule of Civil Procedure 54(b) asking the court to enter judgment that certain claims of U.S. Patent No. 5,663,106 that were subject to reexamination are invalid.

On March 31, 2013, the Court issued an order granting Tessera, Inc.’s motion for summary judgment and denying PTI’s motion for entry of judgment under Federal Rule of Civil Procedure 54(b). The Court stated that because of the close relationship between this case and Civil Action No. 4:11-06121-CW, the Court intends to delay entry of judgment until judgment can be entered in both cases simultaneously.

Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4:11-06121-CW (N.D. Cal.)

On December 6, 2011, PTI filed a complaint against Tessera, Inc. in the U.S. District Court for the Northern District of California. PTI’s complaint seeks a declaratory judgment that PTI has the right to terminate its license with Tessera, Inc. as of December 6, 2011. The complaint also seeks damages for breach of contract in the amount of all royalties paid to Tessera, Inc. since December 7, 2007, purportedly totaling at least $200 million, in addition to an accounting of PTI’s damages, an accounting of Tessera, Inc.’s revenue from PTI, prejudgment interest, costs and fees, and other relief deemed proper. Tessera, Inc. disagrees with the assertions made by PTI in the complaint regarding breach of contract, and believes the likelihood that Tessera, Inc. will be required to return already-paid royalties is remote.

On December 15, 2011, the case was related to Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4:10-00945-CW (N.D. Cal.), discussed above.

On December 30, 2011, Tessera, Inc. filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted and a special motion to strike pursuant to California’s anti-SLAPP statute. The Court denied Tessera, Inc.’s motions on May 21, 2012.

The district court held a Case Management Conference on January 4, 2012. The court issued a Minute Order and Case Management Order dated January 4, 2012, setting, among other things, a fact discovery cut-off date of January 18, 2013 and a trial date of April 7, 2014.

On June 3, 2012, PTI filed an amended complaint against Tessera, Inc., adding claims for fraud and deceit, patent misuse, and a declaratory judgment interpreting PTI’s license agreement with Tessera, Inc. In addition to the damages sought by PTI’s original complaint, the amended complaint seeks punitive damages for fraud, termination of the Tessera, Inc. license as of September 24, 2010, recovery of all royalties paid on wBGA products since September 24, 2010, and an order “enjoining Tessera, Inc. and directing that Tessera, Inc. may not proceed against any party,… under any Tessera Patent as defined by Exhibit A to the TCC License with all amendments, supplements, and additions through September 28, 2010 until Tessera has first paid PTI all of the royalties paid on wBGA products by PTI since September 24, 2010, presently estimated to be $40 million.” Tessera, Inc. filed a motion to dismiss PTI’s claim for patent misuse and to strike portions of PTI’s claim for fraud on June 19, 2012. On August 10, 2012, the Court granted in part and denied in part Tessera, Inc.’s motion, specifically dismissing the patent misuse claim and striking the fraud claim, and granted PTI leave to file an amended and supplemental complaint.

On June 29, 2012, PTI sent a letter to Tessera, Inc. purporting to terminate the TCC License Agreement as of June 30, 2012.

On August 24, 2012, PTI filed a third amended complaint. In addition to the claims and recovery alleged in its earlier complaints, the third amended complaint contained an amended fraud claim and an amended patent misuse claim. The new fraud claim sought damages at least in the amount of the royalty payments made to Tessera, Inc. after December 7, 2007, and punitive damages. The new patent misuse claim asked for declarations that Tessera has engaged in patent misuse, that the agreement is unenforceable against PTI until Tessera, Inc. has purged the patent misuse, and that the Tessera, Inc. patents are unenforceable against PTI until Tessera, Inc. has purged the patent misuse. Tessera, Inc. answered that complaint on September 10, 2012. Also on September 10, 2012, Tessera, Inc. filed counterclaims against PTI for breach of contract, breach of the implied covenant, fraud, negligent misrepresentation, declaratory judgment of indemnification, and declaratory judgment regarding PTI’s asserted termination of the agreement.

On July 20, 2012, PTI filed a motion for summary judgment on PTI’s first claim for relief in this case. On August 9, 2012, Tessera, Inc. filed an opposition to PTI’s motion and filed its own motion for summary judgment on PTI’s first, second and third claims on the ground, among others that under the unambiguous language of the agreement Tessera, Inc. did not breach the agreement by filing and pursing its claims in the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the “'630 ITC Action”).

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On September 20, 2012, the court heard arguments on PTI’s July 20, 2012 summary judgment motion and Tessera, Inc.’s August 9, 2012 summary judgment motions and took the motions under submission. On October 2, 2012, the parties stipulated to the court’s taking the motions off calendar, and that same day, the court entered an order taking the motions off calendar until such date as the court determines the motions should be decided or the presently-set date for hearing summary judgment motions of December 5, 2013.

On Oct. 23, 2012, the Court granted PTI leave to file its fourth amended and supplemental complaint. PTI’s fourth amended complaint adds an allegation to PTI’s claim for declaratory relief seeking the recovery and return of royalty payments made to Tessera, Inc. from at least March 2010 in an amount exceeding $130 million and continues to seek the recovery sought in PTI’s third amended complaint.

On February 6, 2013, the parties stipulated to Tessera, Inc.’s filing Amended Counterclaims adding claims for fraudulent transfer, intentional interference with prospective economic advantage and negligent interference with economic advantage, and seeking damages, punitive damages, to void the fraudulent transfer of PTI’s business to Macrotech Technology, Inc. (“MTI”), to enjoin PTI from any such transfers in the future, and attorneys’ fees and costs. The parties further stipulated to PTI’s filing of a response to Tessera, Inc.’s counterclaims adding affirmative defenses of nonoccurrence of conditions precedent, unilateral contract, and mistake. On March 8, 2013, the Court gave Tessera, Inc. leave to file the Amended Counterclaims. On March 21, 2013, PTI filed an answer to the Amended Counterclaims.

On March 19, 2013, the parties stipulated to Tessera, Inc.’s Second Amended Counterclaims to add MTI as a party, and to add Tessera, Inc.’s claims of intentional interference with prospective economic advantage, negligent interference with economic advantage, inducing breach of contract, and constructive trust against MTI, which seek damages, punitive damages, attorneys’ fees and costs, and an order that the royalties owed by MTI be held in a trust for Tessera, Inc. On March 21, 2013, the Court entered an order giving Tessera, Inc. leave to file the Second Amended Counterclaims. On March 28, 2013, PTI and MTI filed answers to the Second Amended Counterclaims.

Contingency fee dispute for the case of Tessera Technologies, Inc. v. Hynix Semiconductor Inc. et. al, Case No. 1-06-CV-076688 (Cal. Super. Ct.)

Tessera Technologies, Inc. has a dispute with its former counsel Susman Godfrey L.L.P. (“Susman”) over the amount due to Susman, if any, as a contingency fee for Susman’s work in the matter of Tessera Technologies, Inc. v. Hynix Semiconductor Inc. Susman has requested arbitration of the dispute. On March 25, 2013, the arbitrator set a February 3, 2014 trial date.

Other Litigation Matters

In addition to the foregoing matters, the Company and its subsidiaries are involved in other litigation matters and claims in the normal course of business. In the past, the Company and its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to protect trade secrets, to determine the validity and scope of the proprietary rights of others and to defend against claims of infringement or invalidity. The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings regarding infringement of its patents and proceedings to ensure proper and full payment of royalties by licensees under the terms of its license agreements.

These existing and any future legal actions may harm either or both of the Company’s business segments, and may hinder the Company’s ability to independently optimize each business segment. For example, they could cause an existing licensee or strategic partner to cease making royalty or other payments to the Company, or to challenge the validity and enforceability of patents owned by the Company’s subsidiaries or the scope of license agreements with the Company’s subsidiaries, and could significantly damage the Company’s relationship with such licensee or strategic partner and, as a result, prevent the adoption of the Company’s other Intellectual Property or DigitalOptics technologies by such licensee or strategic partner. Litigation could also severely disrupt or shut down the business operations of licensees or strategic partners of the Company’s subsidiaries, which in turn would significantly harm ongoing relations with them and cause the Company to lose royalty revenues.

The costs associated with legal proceedings are typically high, relatively unpredictable and not completely within the Company’s control. These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock. Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal and financial resources from the Company’s business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from others, limit the value of the Company’s licensed technology or otherwise negatively impact the Company’s stock price or its business and consolidated financial position, results of operations or cash flows.

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NOTE 14 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company has two reportable segments: Intellectual Property and DigitalOptics. In addition to these reportable segments, the Tessera Global Services (formally referred to as Corporate Overhead) division includes certain operating amounts that are not allocated to the reportable segments because these operating amounts are not considered in evaluating the operating performance of the Company’s business segments.

The Company's Interim Chief Executive Officer is also the Chief Operating Decision Maker ("CODM") as defined by the authoritative guidance on segment reporting. Additionally, each segment has its own president. The Company has organized its reporting units to align with the vision of the CODM.

The Intellectual Property segment, managed by Tessera Intellectual Property Corp., generates revenue from manufacturers and other implementers that use our technology. The segment includes Tessera, Inc. and Invensas. Tessera, Inc. pioneered chip-scale packaging solutions, which it licenses to the semiconductor industry. Invensas develops and acquires interconnect solutions and intellectual property in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies.

DOC operates the DigitalOptics segment. DOC designs and manufactures imaging systems for smartphones, generating revenue through product sales and software license fees and royalties. DOC’s expertise in optics, camera modules, MEMS, and image processing enable it to deliver products that expand the boundaries of smartphone photography. DOC also offers customized micro-optic lenses, which may include DOEs, ROEs and/or IMOS.

The Company does not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information. Reportable segments do not record inter-segment revenues and accordingly there are none to report. The Company does not allocate other income and expense to reportable segments. Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments.

The following table sets forth the Company’s segment revenues, operating expenses and operating loss for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Revenues:
Intellectual Property Segment:
Royalty and license fees	$	24,138		$	39,028
Past production payments	1,500			—
Product and service revenues	—			—
Total Intellectual Property revenues	25,638			39,028
DigitalOptics Segment:
Royalty and license fees	2,577			4,236
Product and service revenues	2,909			3,409
Total DigitalOptics revenues	5,486			7,645
Total revenues	31,124			46,673
Operating expenses:
Intellectual Property Segment	29,345			20,091
DigitalOptics Segment	53,812			24,652
Corporate Overhead	12,484			12,565
Total operating expenses	95,641			57,308
Operating income (loss):
Intellectual Property Segment	(3,707		)	18,937
DigitalOptics Segment	(48,326		)	(17,007		)
Corporate Overhead	(12,484		)	(12,565		)
Total operating loss	$	(64,517	)	$	(10,635	)

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A significant portion of the Company’s revenues is derived from licensees headquartered outside of the U.S., principally in Asia, and it is expected that these revenues will continue to account for a significant portion of total revenues in future periods. The table below lists the geographic revenues information for the periods indicated (in thousands):

	Three Months Ended March 31,
	2013				2012
Korea	$	16,385	53	%	$	6,382	14	%
U.S.	6,076		20	%	17,981		39	%
Japan	5,153		17	%	6,508		14	%
China	1,064		3	%	1,637		4	%
Europe and other	983		3	%	2,298		5	%
Other Asia	852		2	%	1,472		2	%
Taiwan	611		2	%	10,395		22	%
	$	31,124	100	%	$	46,673	100	%

For the three months ended March 31, 2013, two customers each accounted for 10% or more of total revenues. For the three months ended March 31, 2012, three customers each accounted for 10% or more of total revenues.

As of March 31, 2013 and December 31, 2012, property and equipment, net, by geographical area are presented below (in thousands):

	March 31, 2013		December 31, 2012
U.S.	$	39,923	$	39,467
Taiwan	18,568		18,176
China	6,218		11,039
Israel	1,343		1,834
Asia Pacific and other	1,998		2,028
Total	$	68,050	$	72,544

NOTE 15 – RELATED PARTY TRANSACTION

In 2007, the Company licensed its OptiML wafer-level camera technology and SHELLCASE wafer-level packaging solutions to NemoTek Technologie S. A. (“NemoTek”), a supplier of camera solutions for the cell phone market. As of March 31, 2013 and December 31, 2012, the Company had an investment of approximately $2.0 million in NemoTek at each period end, which represented less than a 10% holding in NemoTek. Revenues from NemoTek were less than 1% of total revenues and were not significant for the three months ended March 31, 2013 and 2012. The accounts receivable balance from NemoTek was not significant at March 31, 2013 and December 31, 2012.

NOTE 16 – RESTRUCTURING, IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES

In March 2013, the Company announced a restructuring of its DigitalOptics segment and a reduction of corporate overhead expenses to refocus its DigitalOptics Corporation ("DOC") business strategy to achieve the full potential of its differentiated imaging technology while reducing costs. These actions included $2.1 million in workforce and corporate overhead reductions and $13.7 million impairment of long-lived assets, which included an $8.7 million charge due to the abandonment of patents and technology which caused a revision of the useful life estimate of these patent and technology assets thus fully impairing them. The Company incurred total charges of $15.8 million in the first quarter of 2013 and expects to incur approximately $5.8 million of additional expenses in the second quarter of 2013. Refer to the table below for more details of the restructuring, impairment of long-lived assets, and other charges.

In November 2012, the Company announced a restructuring of its DigitalOptics segment to focus its efforts on its core MEMS camera module business. In connection with this effort, DigitalOptics is reducing its workforce and ceasing operations at its facility in Tel Aviv, Israel. In connection with these actions, the Company incurred total charges of $2.5 million in the fourth quarter of 2012 and $0.1 million in the first quarter of 2013. The Company expects to incur approximately $0.1 million of additional expenses in the second quarter of 2013.

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In January 2011, the Company announced a reorganization of its DigitalOptics segment to focus on key growth opportunities including extended depth of field (“EDoF”), Zoom and MEMS-based auto-focus and a reduction of DigitalOptics employees by up to 15% of the Company’s worldwide employee base along with certain headquarters support functions. In August 2011, the Company announced a commitment to undertake a workforce reduction at its Yokohama, Japan development facility and to close that facility in order to optimize the Company’s operations. Expenses incurred as a result of these activities consisted of severance, costs related to the continuation of certain employee benefits and expenses related to the closure of the facility and termination of the operating lease, and are recorded in restructuring and other charges on the statement of operations. Total restructuring and other charges related to these activities was $5.2 million, all of which were expensed in the year ended December 31, 2011 and these activities were completed during the first quarter of 2012.

The Company did not incur restructuring charges in the three months ended March 31, 2012. Information with respect to restructuring and other charges as of March 31, 2013 is as follows (in thousands):

	Employee Severance			Impairment of long-lived assets and other			Total
Balance at December 31, 2012	$	1,913		$	28		$	1,941
Charges in the three months ended March 31, 2013 (1)	2,064			13,691			15,755
Cash payments	(1,967		)	(25		)	(1,992		)
Non-cash items	—			(13,694		)	(13,694		)
Balance at March 31, 2013	$	2,010		$	—		$	2,010

(1) Impairment of long-lived assets and other of $13.7 million in the three months ended March 31, 2013 included an impairment charge of $3.2 million in manufacturing equipment assets held for sale resulting from the closure of the Zhuhai Facility (see Note 4 – "Composition of Certain Financial Statement Captions" for more information about the assets held for sale), impairment of $1.5 million of intangible assets (see Note 8 – "Goodwill and Identified Intangibles" for more information about the impairment of intangible assets), and $0.3 million impairment of research and development equipment relating to the closure of the facility in Tel Aviv, Israel, and an $8.7 million charge due to the abandonment of patents and technology which caused a revision of the useful life estimate of these patents and technology assets thus fully impairing them (see Note 8 – "Goodwill and Identified Intangibles" for more information about the accelerated amortization of existing technology).

NOTE 17 – SUBSEQUENT EVENT

On April 23, 2013, the Board declared a cash dividend of $0.10 per share of common stock for the first quarter, payable on June 13, 2013, for the stockholders of record at the close of business on May 23, 2013.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2012 found in the Form 10-K.

This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenues, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings related to our patents, our intent to enforce our intellectual property, our ability to license our intellectual property, our ability to become a leading supplier of camera modules in the mobile phone market, our ability to optimize stockholder return with respect to the DigitalOptics business, our ability to identify and effect third-party investments, joint ventures or a possible sale of our DigitalOptics business, the effect of cost-saving measures, tax expenses, cash flows, our ability to liquidate and recover the carrying value of our investments, our management's plans and objectives for our current and future operations, our plans for quarterly and special dividends and stock repurchases, the levels of customer spending or research and development activities, general economic conditions, and the sufficiency of financial resources to support future operations and capital expenditures.

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within Part II, Item 1A of this Quarterly Report and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Corporate Information

Our principal executive offices are located at 3025 Orchard Parkway, San Jose, California 95134. Our telephone number is (408) 321-6000. We maintain a website at www.tessera.com. The reference to our website address does not constitute incorporation by reference of the information contained on this website.

Tessera, the Tessera logo, µBGA, OptiML, DOC, the DOC logo, the mems|cam logo, FaceTools, Invensas, the Invensas logo and SHELLCASE are trademarks or registered trademarks of the Company or its affiliated companies in the United States (“U.S.”) and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.

In this Quarterly Report, the “Company,” “we,” “us” and “our” refer to Tessera Technologies, Inc., which operates its business through its subsidiaries. Unless specified otherwise, the financial results in this Quarterly Report are those of the Company and its subsidiaries on a consolidated basis.

Business Overview

Tessera Technologies, Inc. is a holding company with operating subsidiaries in two segments: Intellectual Property and DigitalOptics.

The Intellectual Property segment, managed by Tessera Intellectual Property Corp., generates revenue from manufacturers and other implementers that use our technology. The segment includes Tessera, Inc. and Invensas. Tessera, Inc. pioneered chip-scale packaging solutions, which it licenses to the semiconductor industry. Invensas develops and acquires interconnect

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solutions and intellectual property in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies.

DOC operates the DigitalOptics segment. DOC designs and manufactures imaging systems for smartphones, generating revenue through product sales and software license fees and royalties. DOC’s expertise in optics, camera modules, MEMS, and image processing enable it to deliver products that expand the boundaries of smartphone photography. DOC also offers customized micro-optic lenses, which may include DOEs, ROEs and/or IMOS.

In March 2013, we determined the DigitalOptics business was to be restructured and announced our plans to close the Zhuhai Facility and the consolidation of our manufacturing capabilities to Taiwan. By closing the Zhuhai Facility, our long-term strategy is to no longer supply the whole camera module but we will manufacture whole camera modules in limited quantities in the near term. Our primary focus will be on developing the mems|cam actuator, the imaging software and user applications, and on manufacturing and supplying only the lens barrel. The high volume camera module production will be outsourced to a third party. In April 2013, we announced that we are exploring the possibility of seeking third-party investments, joint ventures or a possible sale of our DigitalOptics business, so as to reduce the capital resources required from us while optimizing stockholder return on investment.

In November 2012, we announced our plans to focus on our core MEMS autofocus product opportunity and our intention to pursue a possible sale of, or other strategic alternatives for, our facility in Charlotte North Carolina that develops and manufactures our micro-optic products, which we believe are not central to our core opportunity.

Our segments were determined based upon the manner in which our management viewed and evaluated our operations for the period reported.

Intellectual Property Segment

Research and development by our Tessera, Inc. subsidiary led to significant innovations in semiconductor packaging technology. Semiconductor packaging creates the mechanical and electrical connection between semiconductor chips and systems such as computers and communication equipment, often via connection to printed circuit boards. We patented these innovations, often referred to as chip-scale packaging, which were widely adopted in the industry. The wave of adoption was initially led by Intel Corporation, and over time, many semiconductor companies and outsourced assembly and test companies adopted the technology and entered into license agreements with Tessera, Inc. We have developed significant capabilities in licensing, technical analysis, reverse engineering, license administration and litigation as we have sought reasonable royalties from companies that adopted our technologies.

In 2012, we gained initial original equipment manufacturer (OEM) adoption of xFD “DIMM-in-a-Package™” memory technology — one of the technologies Invensas launched in 2011. xFD is a patented semiconductor packaging technology that reduces packaging costs, improves the performance of memory packages containing multiple face down die, and more importantly, enables system manufacturers to use a lower cost printed circuit board. In January 2013, we announced our first xFD licensee and we continue to work with system manufacturers, memory chip manufacturers and assembly and test companies to expand the adoption of xFD technology.

DigitalOptics Segment

DigitalOptics offers imaging systems for smartphones that include DOC's MEMS autofocus camera modules, lens barrels and embedded image processing software. Through its innovative products and technologies, DOC helps smartphone vendors deliver improved camera performance and functionality to consumers.

mems|cam Products:

DOC's mems|cam family of products includes autofocus camera modules and lens barrels for smartphones. By leveraging DOC's proprietary MEMS designs and processes, DOC's mems|cam products provide superior focusing speed, lower power usage, and greater precision advantages over incumbent autofocus technologies such as mechanical voicecoil motors (VCMs).

Embedded Image Processing Solutions:

DOC's software solutions for mobile imaging include its FaceTools™, face beautification, red-eye removal, HDR, panorama, and image stabilization products.

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FaceTools, which provide face-oriented imaging technology such as face tracking/detection, smile/blink detection, red-eye removal, face recognition and face beautification. When combined with our hardware acceleration technology, the performance of these applications for both video and still images is enhanced.

Face Beautification, which allows users to automatically enhance portraits (still and video) with features such as skin toning, face slimming, eye brightening, and teeth whitening.

HDR, or High Dynamic Range which enables users to capture quality images even in the presence of a wide range of lighting conditions (e.g., bright lights or sun).

Panorama, which enables users to easily and automatically create panoramic images in a single step without a PC or editing software.

Image Stabilization, which corrects for motion blur and shake induced during video capture.

Micro-Optics:

DOC uses the latest semiconductor manufacturing techniques to deliver its micro-optic lenses, including DOEs, ROEs and IMOS. The products are manufactured in DOC's state-of-the-art ISO-registered facility in Charlotte, North Carolina. On November 14, 2012, we announced we intended to pursue a possible sale of, or other strategic alternatives for, this facility, as we believe that it is not central to DOC's core product opportunity in the MEMS autofocus area.

Results of Operations

Acquisitions

We have grown our business partly through acquisitions. In June 2012, we completed the Zhuhai Transaction, which involved the acquisition of certain assets of Vista Point Technologies, a Tier One qualified camera module manufacturing business, from Flextronics International Ltd. for consideration of $29.0 million, net of $11.9 million cash acquired. Approximately $7.6 million of the consideration has been placed in escrow at the initial closing, of which, approximately $4.1 million is subject to delivery of certain additional assets by Flextronics International Ltd. no later than March 31, 2013 and approximately $2.8 million of which was released in connection with the delivery of certain additional assets in the fourth quarter of 2012. As of the date of this filing, the $4.1 million in assets mentioned above have not been delivered, the related $4.1 million remains in escrow and we are currently negotiating settlement to resolve this matter. We are unable to predict whether or not we will be required to accept late delivery of the assets, which the Company has impaired due to the closing of the Zhuhai Facility, as described below.

In March 2013, we determined the DigitalOptics business was to be restructured and announced our planned closure of the Zhuhai Facility and the consolidation of our manufacturing capabilities to Taiwan. By closing the Zhuhai Facility, our long-term strategy is to no longer supply the whole camera module but we will manufacture whole camera modules in limited quantities in the near term. Our primary focus will be on developing the mems|cam actuator, the imaging software and user applications, and on manufacturing and supplying only the lens barrel. The high volume camera module production will be outsourced to a third party. As a result of this restructuring, certain assets acquired in the Zhuhai Transaction were considered impaired or written off entirely. For further discussion of affected assets, see Note 4 – "Composition of Certain Financial Statement Captions," Note 8 – "Goodwill and Identified Intangible Assets" and Note 16 – "Restructuring, Impairment of Long-Lived Assets and Other Charges" in the Notes to Condensed Consolidated Financial Statements.

Revenues

Our revenues are generated from royalty and license fees, past production payments, and product and service revenues. Royalty and license fees include revenues from license fees and royalty payments generated from licensing the right to use our technologies or intellectual property. Licensees generally report shipment information 30 to 60 days after the end of the quarter in which such activity takes place. Since there is no reliable basis on which we can estimate our royalty revenues prior to obtaining these reports from the licensees, we recognize royalty revenues on a one quarter lag. The timing of revenue recognition and the amount of revenue actually recognized for each type of revenues depends upon a variety of factors, including the specific terms of each arrangement, our ability to derive fair value of the element and the nature of our deliverables and obligations. In addition, our royalty revenues will fluctuate based on a number of factors such as: (a) the timing of receipt of royalty reports; (b) the rate of adoption and incorporation of our technology by licensees; (c) the demand

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for products incorporating semiconductors that use our licensed technology; (d) the cyclicality of supply and demand for products using our licensed technology; and (e) the impact of economic downturns.

From time to time we enter into license agreements that have fixed expiration dates. Upon expiration of such agreements, we need to renew or replace these agreements in order to maintain our revenue base. We may not be able to continue licensing customers on terms favorable to us, under the existing terms or at all, which would harm our results of operations. For example, our license agreement with Micron Technology, Inc. expired in May 2012. Micron Technology, Inc. accounted for 10% or more of total revenues for the year ended December 31, 2012. This expiration has caused a substantial adverse impact to our royalty revenue as compared to periods prior to such expiration. If we are not able to enter into a new license agreement with Micron Technology, Inc., it will continue to have a substantial adverse impact on our royalty revenue.

We are in litigation with PTI, a material customer in 2012, and PTI has ceased making payments, which has caused a substantial adverse impact to our royalty revenue as compared to prior periods. See under the subheading “Contingencies” in Note 13 – “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements. If we are not able to replace the revenue from PTI or if we receive an adverse determination in the litigation with PTI, it will continue to have a substantial adverse impact on our royalty revenue.

In the past, we have engaged in litigation and arbitration proceedings to directly or indirectly enforce our intellectual property rights and the terms of our license agreements, including proceedings to ensure proper and full payment of royalties by our current licensees and by third parties whose products incorporate our intellectual property rights. For example, on February 20, 2013 the International Court of Arbitration of the International Chamber of Commerce issued an award in favor of Tessera, Inc. in its dispute with Amkor. Tessera, Inc. cannot predict the precise amount or the timing of Amkor's payment. We believe that the dispute with Amkor and similar future proceedings may result in fluctuations in our revenue and expenses.

The following table presents our historical operating results for the periods indicated as a percentage of revenues:

	Three Months Ended
	March 31, 2013		March 31, 2012
Revenues:
Royalty and license fees	86	%	93	%
Past production payments	5		—
Product and service revenues	9		7
Total revenues	100		100
Operating expenses:
Cost of revenues	26		12
Research, development and other related costs	83		50
Selling, general and administrative	81		53
Litigation expense	45		8
Restructuring, impairment of long-lived assets and other charges	51		—
Impairment of goodwill	21		—
Total operating expenses	307		123
Operating loss	(207	)	(23	)
Other income and expense, net	1		2
Loss before taxes	(206	)	(21	)
Benefit from income taxes	(63	)	(4	)
Net loss	(143	)%	(17	)%

The following table sets forth our revenues by type (in thousands, except for percentages):

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	Three Months Ended
	March 31, 2013				March 31, 2012				Increase (Decrease)			% Change
Royalty and license fees	$	26,715	86	%	$	43,264	93	%	$	(16,549	)	(38	)%
Past production payments	1,500		5		—		—		1,500			n/a
Product and service revenues	2,909		9		3,409		7		(500		)	(15	)%
Total revenues	$	31,124	100	%	$	46,673	100	%	$	(15,549	)	(33	)%

Total revenue for the three months ended March 31, 2013 and 2012 was $31.1 million and $46.7 million, respectively. See “Segment Operating Results” below for an explanation of the changes in revenue as compared between the reporting periods.

Cost of Revenues

Cost of revenues primarily consists of materials and supplies, direct compensation, amortization of intangible assets related to acquired technologies, and depreciation expense. Amortization of certain acquired intangible assets and depreciation expense of property and equipment are generally classified as a component of cost of revenues from research, development and other related costs when an in-process development project reaches commercialization. Excluding amortization of acquired intangible assets, cost of revenues relates primarily to product and service revenues. For each associated period, cost of revenues as a percentage of total revenues varies based on the rate of adoption of our technologies, the product and service revenues component of total revenues, the mix of product sales to semiconductor, optics and communications industries and the timing of property and equipment being placed in service. We anticipate our cost of revenues will decline as our product revenue declines in accordance with our strategy for our DigitalOptics business, which includes the closure of the Zhuhai Facility.

Cost of revenues for the three months ended March 31, 2013 was $7.9 million, as compared to $5.8 million for the three months ended March 31, 2012, an increase of $2.1 million, or 36%. The increase was primarily due to increases in depreciation of $1.1 million and in material costs of $0.8 million. The increases as compared to the same periods in 2012 were driven by the operations acquired in the Zhuhai Transaction.

Research, Development and Other Related Costs

Research, development and other related costs consist primarily of compensation and related costs for personnel, as well as costs related to patent applications and examinations, product "tear downs" and reverse engineering, amortization of intangible assets, materials, supplies and equipment depreciation. Research and development is conducted primarily in-house and targets development of chip-scale, circuitry design, 3D architecture, wafer-level packaging technology, high-density substrate, thermal management technology, image sensor packaging, image enhancement technology, including MEMS-based products, and micro-optic lens solutions such as diffractive and refractive optical elements to integrated micro-optical subassemblies. All research, development and other related costs are expensed as incurred.

Research, development and other related costs for the three months ended March 31, 2013 were $25.9 million, as compared to $23.4 million for the three months ended March 31, 2012, an increase of $2.5 million, or 11%. The increase was primarily due to increases in personnel related expenses of $1.4 million and in material costs of $0.8 million, offset by a decrease in stock-based compensation of $0.6 million.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs for sales and marketing personnel, reverse engineering personnel and services, marketing programs, public relations, promotional materials, travel, trade show expenses, and stock-based compensation expense. General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance and accounting personnel, legal fees and expenses, facilities costs, stock-based compensation expense, and professional services. Our general and administrative expenses, other than facilities related expenses, are not allocated to other expense line items.

Selling, general and administrative expenses for the three months ended March 31, 2013 were $25.3 million, as compared to $24.6 million for the three months ended March 31, 2012, an increase of $0.7 million, or 3%. The increase was primarily attributable to increases in depreciation of $0.9 million and in personnel related expenses of $1.4 million, offset by a decrease in stock-based compensation expense of $0.8 million. We anticipate that our selling, general and administrative expenses will decline from current levels in the latter half of 2013 as we implement our cost savings strategies.

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Litigation Expense

Litigation expense for the three months ended March 31, 2013 was $14.1 million, as compared to $3.5 million for the three months ended March 31, 2012, an increase of $10.6 million, or 303%. The increase was primarily attributable to the timing of case activities in our docket of legal proceedings.

We expect that litigation expense will continue to be a material portion of our operating expenses in future periods, and may fluctuate significantly in some periods, because of our ongoing litigation, as described in Part II, Item 1 – Legal Proceedings, and because of litigation initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.

Upon expiration of the current terms of our customers’ licenses, if those licenses are not renewed, litigation may become a necessary element of a campaign to secure payment of reasonable royalties for the use of our patented technology. If we initiate such litigation, our future litigation expenses would significantly increase.

Restructuring, Impairment of Long-Lived Assets and Other Charges

In March 2013, we announced further restructuring of our DigitalOptics segment to focus our efforts on our core MEMS camera module business, and a reduction in corporate overhead. In connection with this effort, we are reducing our workforce and ceasing operations at the Zhuhai Facility. In connection with these actions, we incurred total charges, excluding impairment of goodwill, of $15.8 million in the three months ended March 31, 2013 and expect to incur approximately $5.8 million of additional expenses in the second quarter of 2013. See Note 16 – "Restructuring, Impairment of Long-Lived Assets and Other Charges" of the Notes to Condensed Consolidated Financial Statements for additional details.

Impairment of Goodwill

In March 2013, we recorded an impairment charge of goodwill of $6.7 million due to the closure of the Zhuhai Facility. See Note 8 – “Goodwill and Identified Intangible Assets” of the Notes to Condensed Consolidated Financial Statements for additional details.

Stock-based Compensation Expense

The following table sets forth our stock-based compensation expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31, 2013		March 31, 2012
Cost of revenues	$	54	$	150
Research, development and other related costs	1,089		1,712
Selling, general and administrative	1,404		2,194
Total stock-based compensation expense	$	2,547	$	4,056

Stock-based compensation expense categorized by various equity components for the three months ended March 31, 2013 and 2012 is summarized in the table below (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Employee stock options	$	2,036		$	2,762
Restricted stock awards and units	(26		)	790
Employee stock purchase plan	537			504
Total stock-based compensation expense	$	2,547		$	4,056

Stock-based compensation awards included employee stock options, restricted stock awards and units and employee stock purchases. Stock-based compensation expense for the three months ended March 31, 2013 and 2012 was $2.5 million and $4.1 million, respectively. The overall decrease from the three months ended March 31, 2012 was primarily related to decreases resulting from fully amortized expense as shares become vested, forfeitures of restricted stock awards and units, and lower expenses related to modification of stock awards. Future stock-based compensation expense will vary due to volatility in our stock price, number and type of stock awards granted and timing of modifications to stock awards, if any.

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Other Income and Expense, Net

Other income and expense, net for the three months ended March 31, 2013 was $0.3 million, as compared to $0.7 million, for the three months ended March 31, 2012.

Benefit from Income Taxes

The benefit from income taxes for the three months ended March 31, 2013 was $19.6 million and was largely comprised of a tax benefit for domestic and certain foreign losses as offset by foreign withholding and income taxes and the impairment of nondeductible goodwill. The benefit from income taxes for the three months ended March 31, 2012 was $1.9 million and was largely comprised of a tax benefit for domestic losses as offset by foreign withholding and income taxes. The Company’s provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, and the tax effect of discrete items occurring during the period. The tax for jurisdictions for which a loss is expected and no benefit can be realized for the year is based on actual taxes and tax reserves for the quarter. The increase in the income tax benefit for the three months ended March 31, 2013 as compared to the same period in the prior year is largely attributable to the greater loss incurred in the current quarter and a benefit generated from the prior year’s domestic research tax credit offset by an increase in valuation allowance related to state and foreign deferred tax assets and the impairment of nondeductible goodwill for which the Company does not receive a tax benefit.

Our net deferred tax assets relate predominantly to the United States federal tax jurisdiction. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both negative and positive evidence to assess the recoverability of our net deferred tax assets during the first quarter of 2013, we determined that it was more likely than not we would realize the full value of our federal deferred tax assets. As such, we determined that no valuation allowance is required on our net federal deferred tax assets. We continue to monitor the likelihood that we will be able to recover our deferred tax assets. Adjustments could be required in the future if we conclude that it is more likely than not that deferred tax assets are not recoverable. A provision for a valuation allowance could have the effect of increasing the income tax provision in the statement of operations in the period the valuation allowance is provided.

Segment Operating Results

We have two reportable segments: Intellectual Property and DigitalOptics. In addition to these reportable segments, Tessera Global Services, Inc., a subsidiary of the Company, provides our operating business segments with a variety of services including finance, IT, HR, legal, business development and other administrative services. The Tessera Global Services (formerly referred to as Corporate Overhead) division includes certain operating amounts that are not allocated to the reportable segments because these operating amounts are not considered in evaluating the operating performance of our business segments.

Our Interim Chief Executive Officer is also the Chief Operating Decision Maker (“CODM”) as defined by the authoritative guidance on segment reporting. Additionally, each segment has its own president. We have organized our reporting units to align with the vision of the CODM.

Our Intellectual Property segment, managed by Tessera Intellectual Property Corp., generates revenue from manufacturers and other implementers that use our technology. The segment includes our subsidiaries, Tessera, Inc. and Invensas. Tessera, Inc. pioneered chip-scale packaging solutions, which it licenses to the semiconductor industry. Invensas develops and acquires interconnect solutions and intellectual property in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies.

DOC operates our DigitalOptics business. DOC designs and manufactures imaging systems for smartphones, generating revenue through product sales and software license fees and royalties. DOC's expertise in optics, camera modules, MEMS, and image processing enable it to deliver products that expand the boundaries of smartphone photography. DOC also offers customized micro-optic lenses, which may include DOEs, ROEs and/or IMOS.

Our reportable segments were determined based upon the manner in which our management views and evaluates our operations. Segment information below and in Note 14 – “Segment and Geographic Information” of the Notes to Condensed Consolidated Financial Statements is presented in accordance with the authoritative guidance on segment reporting.

The following table sets forth our segments’ revenues, operating expenses and operating loss (in thousands):

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	Three Months Ended
	March 31, 2013			March 31, 2012
Revenues:
Intellectual Property Segment:
Royalty and license fees	$	24,138		$	39,028
Past production payments	1,500			—
Product and service revenues	—			—
Total Intellectual Property revenues	25,638			39,028
DigitalOptics Segment:
Royalty and license fees	2,577			4,236
Product and service revenues	2,909			3,409
Total DigitalOptics revenues	5,486			7,645
Total revenues	31,124			46,673
Operating expenses:
Intellectual Property Segment	29,345			20,091
DigitalOptics Segment	53,812			24,652
Corporate Overhead	12,484			12,565
Total operating expenses	95,641			57,308
Operating income (loss):
Intellectual Property Segment	(3,707		)	18,937
DigitalOptics Segment	(48,326		)	(17,007		)
Corporate Overhead	(12,484		)	(12,565		)
Total operating loss	$	(64,517	)	$	(10,635	)

Revenues and operating loss amounts in this section have been presented on a basis consistent with U.S. GAAP applied at the segment level. Corporate Overhead expenses which have been excluded are primarily support services, human resources, legal, finance, IT, corporate development, procurement activities, and insurance expenses. For the three months ended March 31, 2013, Corporate Overhead expenses were $12.5 million as compared to $12.6 million for the three months ended March 31, 2012. The decrease of $0.1 million was mainly attributable to decreases in stock-based compensation expense of $1.1 million and in outside services of $0.7 million. These decreases were partially offset by an increase of $0.8 million in restructuring expense and $0.4 million in personnel related expenses. We have recently announced cost saving measures to reduce our Corporate Overhead expenses in future periods.

Intellectual Property Segment

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	Three Months Ended
	March 31, 2013			March 31, 2012		Increase (Decrease)			% Change
Revenues:
Intellectual Property:
Royalty and license fees	$	24,138		$	39,028	$	(14,890	)	(38	)%
Past production payments	1,500			—		1,500			n/a
Product and service revenues	—			—		—			—
Total Intellectual Property revenues	25,638			39,028		(13,390		)	(34	)
Operating expenses:
Cost of revenues	168			196		(28		)	(14	)
Research, development and other related costs	6,673			9,163		(2,490		)	(27	)
Selling, general and administrative	8,467			6,994		1,473			21
Litigation expense	14,037			3,738		10,299			276
Total operating expenses	29,345			20,091		9,254			46
Total operating income (loss)	$	(3,707	)	$	18,937	$	(22,644	)	(120	)%

Intellectual Property revenues consist primarily of royalties received from our licensees. For the three months ended March 31, 2013, Intellectual Property revenues were $25.6 million as compared to $39.0 million for the three months ended March 31, 2012, a decrease of $13.4 million, or 34%. The overall decrease in revenues was primarily due to the absence of royalty revenue from Micron Technology, Inc. and Powertech Technology, Inc. in the three months ended March 31, 2013 compared to the three months ended March 31, 2012, when they accounted for a total of $21.3 million in revenue.

Operating expenses for the three months ended March 31, 2013 were $29.3 million and consisted primarily of research, development and other related costs of $6.7 million, selling, general and administrative expense of $8.5 million and litigation expense of $14.0 million. The increase of $9.3 million, or 46%, in total operating expense as compared to $20.1 million for the three months ended March 31, 2012, was primarily attributable to increases in personnel related expense of $1.0 million and in litigation expense of $10.3 million.

We expect that litigation expense will continue to be a material portion of our operating expenses in future periods, and may fluctuate significantly in some periods, because of our ongoing litigation, as described in Part II, Item 1 – Legal Proceedings, and because of litigation initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.

Operating loss for the three months ended March 31, 2013 was $3.7 million as compared to operating income of $18.9 million for the three months ended March 31, 2012, which represented a decrease of $22.6 million, or 120%, for the reasons stated above.

DigitalOptics Segment

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	Three Months Ended
	March 31, 2013			March 31, 2012			Increase (Decrease)			% Change
Revenues:
DigitalOptics
Royalty and license fees	$	2,577		$	4,236		$	(1,659	)	(39	)%
Product and service revenues	2,909			3,409			(500		)	(15	)
Total DigitalOptics revenues	5,486			7,645			(2,159		)	(28	)
Operating expenses:
Cost of revenues	7,774			5,564			2,210			40
Research, development and other related costs	19,276			14,282			4,994			35
Selling, general and administrative	5,110			4,806			304			6
Litigation	44			—			44			—
Restructuring, impairment of long-lived assets and other charges	14,944			—			14,944			—
Impairment of goodwill	6,664			—			6,664			—
Total operating expenses	53,812			24,652			29,160			118
Total operating loss	$	(48,326	)	$	(17,007	)	$	(31,319	)	184	%

DigitalOptics revenues for the three months ended March 31, 2013 were $5.5 million as compared to $7.6 million for the three months ended March 31, 2012, a decrease of $2.2 million or 28%. The decrease in DigitalOptics revenues in the three months ended March 31, 2013 as compared to the same period in 2012 was due primarily to lower revenues related to royalties and licenses of our image enhancement technologies and weaker demand for our camera modules and Micro-Optics products.

Operating expenses for the three months ended March 31, 2013 were $53.8 million. The increase of $29.2 million, or 118%, in total operating expenses as compared to $24.7 million for the three months ended March 31, 2012, was primarily due to the one-time charge of $6.7 million for the impairment of goodwill, and restructuring, impairment of long-lived assets and other charges of $14.9 million, as well as an increase of $2.1 million in materials and supplies primarily related to the manufacturing operation acquired in the Zhuhai Transaction, and increases in personnel related expenses of $2.6 million and depreciation expense of $1.9 million. Excluding one-time impairment and restructuring charges, we expect our operating expenses to decline as we continue to implement our strategy for DigitalOptics, which includes the closure of our Zhuhai Facility.

In March 2013, we announced a reorganization of our DigitalOptics segment to focus on developing the mems|cam actuator, and on manufacturing and supplying only the lens barrel. Restructuring, impairment of long-lived assets and other charges totaling $14.9 million primarily consisted of $1.2 million in employee severance, a $3.2 million impairment charge relating to assets held for sale which consist of manufacturing equipment relating to the closure of the Zhuhai Facility, impairment of $1.5 million of intangible assets, and $0.3 million impairment of research and development equipment relating to the closure of the facility in Tel Aviv, Israel, and an $8.7 million charge due to the abandonment of existing technology which caused a revision of the useful life estimate thus fully impairing such technology assets. See Note 16 – "Restructuring, Impairment of Long-Lived Assets and Other Charges" of the Notes to Condensed Consolidated Financial Statements for additional details.

Operating loss for the three months ended March 31, 2013 and 2012 was $48.3 million and $17.0 million, respectively, which represented an increased loss of $31.3 million, or 184%, for the reasons stated above.

We have incurred significant operating losses from the DigitalOptics segment. If the anticipated future results of the DigitalOptics segment do not materialize as expected, then the related long-lived assets could be subject to additional impairment charges in the future.

Liquidity and Capital Resources

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	As of March 31,			As of December 31,
(in thousands, except for percentages)	2013			2012
Cash and cash equivalents	$	73,736		$	103,802
Short-term investments	328,977			338,801
Total cash, cash equivalents and short-term investments	$	402,713		$	442,603
Percentage of total assets	62		%	63		%
	Three Months Ended
	March 31, 2013			March 31, 2012
Net cash used in operating activities	$	(29,312	)	$	(1,152	)
Net cash provided by investing activities	$	97		$	20,729
Net cash provided by (used in) financing activities	$	(851	)	$	3,578

Cash generated from operations is our primary source of liquidity and capital resources. Our investment portfolio is also available for future cash requirements. Cash, cash equivalents and investments were $402.7 million at March 31, 2013, a decrease of $39.9 million from $442.6 million at December 31, 2012. Cash and cash equivalents were $73.7 million at March 31, 2013, a decrease of $30.1 million from $103.8 million at December 31, 2012. The decrease in cash and cash equivalents was primarily the result of $29.3 million in cash used by operating activities and $0.9 million net cash used in financing activities, offset by $0.1 million in cash provided by investing activities.

Cash flows used in operations were $29.3 million for the three months endedMarch 31, 2013, primarily due to our net loss of $44.6 million being adjusted for non-cash items of depreciation and amortization of $11.3 million, restructuring, impairment of long-lived assets and other charges of $13.8 million, impairment of goodwill of $6.7 million, stock-based compensation expense of $2.5 million, and changes in operating assets and liabilities of $3.8 million offset by the non-cash item of deferred income taxes of $22.8 million.

Cash flows used by operations were $1.2 million for the three months endedMarch 31, 2012, primarily due to net loss of $8.1 million, adjusted for non-cash items of depreciation and amortization of $9.1 million and stock-based compensation expense of $4.1 million, offset by a net decrease in the changes in operating assets and liabilities of $6.8 million.

Net cash provided by investing activities was $0.1 million for the three months endedMarch 31, 2013, primarily related to the maturities and sales of short-term investments of $64.0 million, offset by purchases of available-for-sale securities of $54.5 million, purchases of intangible assets of $0.6 million, and purchases of property and equipment of $9.2 million. We anticipate needing additional investment in property and equipment as we continue to build our new manufacturing facility in Taiwan.

Net cash provided by investing activities was $20.7 million for the three months endedMarch 31, 2012, primarily related to proceeds from maturities and sales of investments of $80.4 million, offset by purchases of short-term investments of $55.6 million, purchases of property and equipment of $1.9 million and purchases of intangible assets of $2.2 million.

Net cash used in financing activities was $0.9 million for the three months endedMarch 31, 2013 due to a dividend payment of $5.3 million, offset by the issuance of common stock under our employee stock option programs and employee stock purchase plans.

Net cash provided by financing activities was $3.6 million for the three months endedMarch 31, 2012 due to the issuance of common stock under our employee stock option programs and employee stock purchase plans.

The primary objectives of our investment activities are to preserve principal and to maintain liquidity while at the same time capturing a market rate of return. To achieve these objectives, we maintain a diversified portfolio of debt securities including municipal bonds and notes, corporate bonds and notes, commercial paper, treasury and agency notes and bills, certificates of deposit and money market funds. We invest excess cash predominantly in high-quality investment grade debt securities with less than two years to maturity. Our marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income. The fair values for our securities are determined based on quoted market prices as of the valuation date and observable prices for similar assets.

We evaluate our investments periodically for possible other-than-temporary impairment and review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, our intent to hold and whether we will not be required to sell the security before its anticipated recovery, on a more likely than not basis. If declines in the fair value of the investments are determined to be other-than-temporary, we report the credit loss portion of such decline in

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other income and expense, net, and the remaining noncredit loss portion in accumulated other comprehensive income. For the three months ended March 31, 2013 and 2012, no impairment charges with respect to our investments were recorded.

In August 2007, our Board of Directors authorized a plan to repurchase up to a maximum total of $100.0 million of our outstanding shares of common stock dependent on market conditions, share price and other factors. No expiration has been specified for this plan. Repurchases may take place in the open market or through private transactions. As of March 31, 2013, we have repurchased approximately 645,000 shares of common stock at a total cost of $10.5 million under this plan at an average price of $16.26. As of March 31, 2013, the total amount available for repurchase was $89.5 million. We may continue to execute authorized repurchases from time to time under the plan.

In April 2013, we announced plans for a revised dividend policy.  The revised dividend policy maintains the current quarterly dividend.  We also announced a plan to provide for special dividends once a year equal to 20-30% of “Episodic Gain,” which is net gain resulting from “Episodic Revenue”. We define Episodic Revenue as revenue other than revenue payable over at least one year pursuant to a contract, and may include revenue such as non-recurring engineering fees, initial license fees, back payments resulting from audits, damages awards from courts or tribunals, and lump sum settlement payments. Another 20-30% of Episodic Gain would be used to provide a “sinking fund” to provide for the growth of the quarterly dividends. We also announced a plan to repurchase outstanding shares of our common stock in an amount equal to 20-30% of Episodic Gain.  We anticipate that all quarterly and special dividends, as well as stock repurchases, would be paid out of cash, cash equivalents and short-term investments.

We believe that based on current levels of operations and anticipated growth, our cash from operations, together with cash, cash equivalents and short-term investments currently available, will be sufficient to fund our operations, dividends and stock repurchases, anticipated DOC growth and acquisition funding needs for at least the next twelve months. Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. There can be no assurance that equity or debt financing will be available when needed or, if available, that such financing will be on terms satisfactory to us and not dilutive to our then-current stockholders.

Contractual Cash Obligations

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		Thereafter
	(In thousands)
Operating lease obligations	$	11,275	$	1,935	$	7,899	$	1,441	$	—
Purchase obligations	1,335		1,335		—		—		—
Total	$	12,610	$	3,270	$	7,899	$	1,441	$	—

The amounts reflected in the table above for obligations represent aggregate future minimum lease payments under non-cancellable facility and equipment operating leases. In addition, we have agreements containing non-cancelable, nonrefundable payments terms with third parties to purchase services. For our facilities leases, rent expense charged to operations differs from rent paid because of scheduled rent increases. Rent expense is calculated by amortizing total rental payments on a straight-line basis over the lease term.

As of March 31, 2013, unrecognized tax benefits approximated $5.1 million, of which $3.6 million would affect the effective tax rate if recognized. It is reasonably possible that unrecognized tax benefits may decrease by a range of $2.3 million to $2.4 million in the next 12 months due to the expected lapse of statutes of limitation relating to the federal research tax credit, foreign tax incentives and the conclusion of a foreign tax examination. At this time, we are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. As a result, this amount is not included in the table above.

See Note 13 – "Commitments and Contingencies" of the Notes to the Condensed Consolidated Financial Statements for additional detail.

Off-Balance Sheet Arrangements and Related Party Transactions

As of March 31, 2013, we did not have any off-balance sheet arrangements as defined in item 303(a)(4)(ii) of Regulation S-K.

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In 2007, the Company licensed its OptiML wafer-level camera technology and SHELLCASE wafer-level packaging solutions to NemoTek, a supplier of camera solutions for the cell phone market. As of March 31, 2013 and December 31, 2012, the Company had an investment of approximately $2.0 million in NemoTek at each period end, which represented less than a 0.1% holding in NemoTek. Revenues from NemoTek were less than 1% of total revenues and were not significant for the three months ended March 31, 2013 and 2012. The accounts receivable balance from NemoTek was not significant at March 31, 2013 and December 31, 2012.

Critical Accounting Policies and Estimates

During the three months ended March 31, 2013 there were no significant changes in our critical accounting policies. See Note 2 – “Summary of Significant Accounting Policies” of the Notes to the Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting policies and estimates, see Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Recent Accounting Pronouncements

See Note 3 – “Recent Accounting Pronouncements” of the Notes to the Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of the Company’s market risk, see Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the Form 10-K.

Item 4. Controls and Procedures

Attached as exhibits to this Form 10-Q are certifications of the Company’s Interim Chief Executive Officer and the Company's Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Evaluation of Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the evaluation date). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective to provide reasonable assurance that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting. There have been no changes in the Company’s internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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Other than to the extent the proceedings described below have concluded, we cannot predict the outcome of any of the proceedings described below. An adverse decision in any of these proceedings could significantly harm our business and our consolidated financial position, results of operations and cash flows. The disclosure in this Item I updates the disclosure contained in Part I, Item 3 of the Form 10-K.

Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 4:05-cv-04063-CW (N.D. Cal.)

On October 7, 2005, Tessera, Inc. filed a complaint for patent infringement against Advanced Micro Devices, Inc. (“AMD”) and Spansion LLC in the United States District Court for the Northern District of California, alleging infringement of U.S. Patent Nos. 5,679,977, 5,852,326, 6,433,419 and 6,465,893 arising from AMD’s and Spansion LLC’s respective manufacture, use, sale, offer to sell and/or importation of packaged semiconductor components and assemblies thereof. Tessera, Inc. seeks to recover damages, up to treble the amount of actual damages, together with attorney’s fees, interest and costs. Tessera, Inc. also seeks other relief.

On December 16, 2005, Tessera, Inc. added Spansion Inc. and Spansion Technology, Inc. to the lawsuit.

On January 31, 2006, Tessera, Inc. added claims for breach of contract and/or patent infringement against new defendants, including Advanced Semiconductor Engineering, Inc., ASE (U.S.) Inc. (collectively “ASE”), ChipMOS Technologies, Inc., ChipMOS U.S.A., Inc., Siliconware Precision Industries Co. Ltd and Siliconware USA Inc. (collectively “SPIL”), STMicroelectronics N.V., STMicroelectronics, Inc. (collectively “ST”), STATS ChipPAC Ltd., STATS ChipPAC, Inc. and STATS ChipPAC Ltd. (BVI). The defendants in this action have asserted affirmative defenses to Tessera, Inc.’s claims, and some of them have brought related counterclaims alleging that the Tessera, Inc. patents at issue are invalid, unenforceable and not infringed, and/or that Tessera, Inc. is not the owner of the patents.

These actions were stayed pending completion of Investigation No. 337-TA-605, including appeals, before the International Trade Commission (“ITC”). That stay was lifted on January 4, 2012.

On January 4, 2012 the court set a fact discovery cut-off date of January 18, 2013, a hearing on claim construction and certain dispositive motions on December 5, 2013, and a trial date of April 7, 2014. In July 2012, in connection with the filing of back-royalty reports and the payment of back royalties, Tessera, Inc. by stipulation dismissed its cause of action for breach of contract by ChipMOS Technologies, Inc. and ChipMOS U.S.A. and its cause of action for breach of contract by the SPIL entities. On October 2, 2012, the Court granted the stipulated dismissal with prejudice of Tessera, Inc.’s breach of contract claim against STATS ChipPAC Ltd., STATS ChipPAC (BVI) Ltd., and STATS ChipPAC, Inc.

On December 5, 2012 and January 28, 2013, respectively, Tessera, Inc. entered into a settlement with Spansion LLC, Spansion, Inc., and Spansion Technology, Inc. (collectively “Spansion”) and STATS ChipPAC Ltd,, STATS ChipPAC, Inc. and STATS ChipPAC (BVI) Limited (collectively “STATS ChipPac”). Tessera, Inc. filed a stipulated dismissal on December 30, 2012 as to the Spansion entities only and on January 30, 2013 as to the STATS ChipPAC entities only.

On January 31, 2013, the court issued three summary judgment opinions on motions filed related to alleged breach of contract claims. The court denied the defendants’ motion for summary judgment relating to sales to Motorola, granted in part and denied in part ASE’s motion for summary judgment and granted ST’s motion for summary judgment. Breach of contract claims remain against several defendants after these motions.

On February 27, 2013, Tessera Inc. announced that it had entered into a settlement with AMD. Tessera, Inc. filed a stipulated dismissal as to AMD on March 22, 2013.

On March 28, 2013 the court entered an Order modifying certain dates in the case schedule. Among other things, the Order set a hearing on claim construction and certain dispositive motions on April 24, 2014 and a trial date of August 25, 2014.

On April 30, 2013 Tessera, Inc. entered into a settlement with SPIL. Tessera, Inc. filed a stipulated dismissal as to SPIL on May 9, 2013.

Tessera Technologies, Inc. v. Hynix Semiconductor Inc. et. al, Case No. 1-06-CV-076688 (Cal. Super. Ct.)

On December 18, 2006, Tessera Technologies, Inc. filed a complaint against Hynix Semiconductor Inc. and Hynix Semiconductor America, Inc. (collectively, “Hynix”) in the Superior Court of the State of California, for the County of Santa Clara, alleging violations of California antitrust law and California common law based on Hynix's alleged anticompetitive actions in markets related to synchronous dynamic random access memory (“DRAM”). Tessera Technologies, Inc. also seeks other relief, including enjoining Hynix from continuing their alleged anticompetitive actions. On June 1, 2007, the Superior Court overruled Hynix's demurrer to Tessera Technologies, Inc.'s Cartwright Act claims against Hynix, thus allowing the claims

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to proceed. On September 14, 2007, the court overruled another Hynix demurrer to Tessera Technologies, Inc.'s claim for interference with contract and business relations, allowing those claims to proceed as well.

In December 2009, the case was formally coordinated with the Rambus v. Micron lawsuit pending in the San Francisco County Superior Court (Case No. 04-0431105).

On August 17, 2010, the court denied Hynix's motion for summary adjudication for alleged lack of standing and Hynix's motion for summary adjudication regarding Tessera Technologies, Inc.'s claims for damages. The court granted Hynix's motion to dismiss Tessera Technologies, Inc.'s intentional interference claim.

On December 26, 2012, Tessera Technologies, Inc. entered into a settlement with Hynix and certain Tessera Technologies, Inc. subsidiaries entered into license agreements with Hynix. Tessera Technologies, Inc. filed a Notice of Settlement and Request for Dismissal on January 10, 2013. This proceeding is now concluded.

Tessera, Inc. v. Motorola, Inc., et. al, Civil Action No. 4:12-cv-00692-CW (N.D. Cal.)

On April 17, 2007, Tessera, Inc. filed a complaint against Motorola, Inc., Qualcomm, Inc., Freescale Semiconductor, Inc., and ATI Technologies ULC in the United States District Court for the Eastern District of Texas, alleging infringement of Tessera, Inc.’s U.S. Patent Nos. 5,852,326 and 6,433,419, arising from, among other things, the defendants’ respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof. Tessera, Inc. seeks to recover damages, up to treble the amount of actual damages, together with attorney’s fees, interest and costs. Tessera, Inc. filed an amended complaint on May 22, 2007. The parties agreed that the case would be temporarily stayed pending completion, including appeals, of ITC Investigation No. 337-TA-605 titled In re Certain Semiconductor Chips With Minimized Chip Package Size and Products Containing Same. On or about June 2, 2009, Motorola, Inc. and Tessera, Inc. entered into a settlement and license agreement regarding certain Tessera, Inc. technology, including the patents at issue in this action. Tessera, Inc.’s request to dismiss Motorola, Inc. from the action was granted by the Court on June 8, 2009.

On January 18, 2012, the stay was lifted and the case transferred to the United States District Court for the Northern District of California. On March 1, 2012, the Court ordered the parties to comply with the scheduling order in Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 4: 05-04063-CW (N.D. Cal.).

The defendants answered the amended complaint on March 12, 2012. ATI Technologies ULC and Qualcomm, Inc. also asserted counterclaims alleging that the Tessera, Inc. patents at issue are invalid and not infringed.

In February 2013, Tessera, Inc. reached a settlement with ATI Technologies ULC, and filed a stipulated dismissal as to ATI Technologies ULC on March 22, 2013.

On March 28, 2013 the Court entered an Order modifying certain dates in the case schedule. Among other things, the Order set a hearing on claim construction and certain dispositive motions on April 24, 2014 and a trial date of August 25, 2014.

Tessera, Inc. v. A-DATA Technology Co., Ltd., et al., Civil Action No. 2:-07-CV-00534-TJW (E.D. Tex.)

On December 7, 2007, Tessera, Inc. filed a complaint against A-Data Technology Co., Ltd., A-Data Technology (U.S.A.) Co., Ltd., Acer, Inc., Acer America Corp., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA) Inc., International Products Sourcing Group, Inc (“IPSG”), Kingston Technology Co., Inc., Nanya Technology Corporation, Nanya Technology Corp., U.S.A., Peripheral Devices & Product Systems, Inc. d/b/a Patriot Memory (“PDP”), Powerchip Semiconductor Corp., ProMOS Technologies Inc., Ramaxel Technology Ltd., Smart Modular Technologies, Inc., TwinMOS Technologies, Inc., and TwinMOS Technologies USA Inc. in the United States District Court for the Eastern District of Texas, alleging infringement of U.S. Patent Nos. 5,679,977, 6,133,627, 5,663,106 and 6,458,681, arising from, among other things, the defendants’ respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof. Tessera, Inc. seeks to recover damages, up to treble the amount of actual damages, together with attorney’s fees, interest and costs.

The defendants have not yet answered Tessera, Inc.’s complaint, but, with the exception of the TwinMOS defendants and Ramaxel, filed motions to stay the case pursuant to 28 U.S.C. § 1659 pending final resolution in the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the “‘630 ITC Action”). Tessera, Inc. filed a motion seeking to find TwinMOS Technologies U.S.A. Inc. in default, and the clerk entered the default judgment. On February 25, 2008, the district court granted the defendants’ motion to stay the action.

On May 21, 2008, Tessera, Inc. settled its dispute with IPSG, and entered into a settlement and license agreement with IPSG and its parent, Micro Electronics, Inc. IPSG was dismissed from the Texas district court action on June 30, 2008. On August 14,

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2008, Tessera, Inc. settled its dispute with PDP, and entered into a settlement and license agreement with PDP. On September 9, 2008, PDP was dismissed from the Texas district court action.

Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4: 10-00945-CW (N.D. Cal.) and U.S. Court of Appeals for the Federal Circuit Case No. 2010-1489

On March 5, 2010, PTI filed a complaint against Tessera, Inc. in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of Tessera, Inc.’s U.S. Patent No. 5,663,106. On March 22, 2010, the case was related to Siliconware Precision Industries, Co., Ltd v. Tessera, Inc. , Civil Action No. 4:08-cv-03667-CW (N.D. Cal.), and assigned to the judge presiding over that action.

On April 1, 2010, Tessera, Inc. filed a motion to dismiss the complaint for lack of subject matter jurisdiction. On June 1, 2010, the judge granted Tessera, Inc.’s motion, and dismissed the action.

On June 29, 2010, PTI filed a motion seeking reconsideration of the June 1, 2010 order dismissing the action. On August 3, 2010, PTI’s motion was denied.

On August 6, 2010, PTI filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit. On September 30, 2011, the Federal Circuit issued an opinion reversing and remanding the case to the district court, determining that there was declaratory judgment jurisdiction. Tessera, Inc. filed a petition for rehearing on November 14, 2011. The Federal Circuit denied Tessera, Inc.’s petition for rehearing on January 5, 2012. On January 19, 2012, the Federal Circuit issued its judgment and the case was remanded to the district court. On December 15, 2011, the district court case was related to Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4:11-06121-CW (N.D. Cal.), discussed below.

The district court held a Case Management Conference on January 4, 2012. The court issued a Minute Order and Case Management Order dated January 4, 2012, setting, among other things, a fact discovery cut-off date of January 18, 2013, and a trial date of April 7, 2014.

On May 16, 2012, the Court entered an order that denied PTI’s motion to strike as to one of Tessera, Inc.’s affirmative defenses, granted PTI’s motion to strike with leave to amend as to several other affirmative defenses asserted by Tessera, Inc., and granted PTI’s motion to strike as to one of Tessera, Inc.’s affirmative defenses, stating that Tessera, Inc. may move to amend to add that defense if circumstances change. Tessera, Inc. filed an amended answer on May 29, 2012.

On June 29, 2012, PTI sent a letter to Tessera, Inc. purporting to terminate the TCC License Agreement as of June 30, 2012.

On July 30, 2012, Tessera, Inc. provided PTI with a covenant not to sue, or otherwise hold liable, PTI or its customers under certain claims of U.S. Patent No. 5,663,106 in connection with certain PTI-manufactured products.

On August 9, 2012, Tessera, Inc. moved for summary judgment on the ground that as a matter of law no case or controversy exists sufficient to support PTI’s claims because of the covenant and because the parties’ rights and obligations do not turn on infringement or validity of the Tessera, Inc. patent that forms the basis of PTI’s claims.

On September 18, 2012, the Patent Office issued an ex parte reexamination certificate in which certain original claims were cancelled from U.S. Patent No. 5,663,106, and certain new claims were added.

On October 1, 2012, Tessera, Inc. provided PTI with a supplemental covenant not to sue, which among other things, extended the covenant to PTI’s subsidiaries and made clear that Tessera, Inc. will not contend that PTI is obligated to pay royalties based on infringement of U.S. Patent No. 5,663,106.

On October 2, 2012, PTI filed a motion for entry of judgment under Federal Rule of Civil Procedure 54(b) asking the court to enter judgment that certain claims of U.S. Patent No. 5,663,106 that were subject to reexamination are invalid.

On March 31, 2013, the Court issued an order granting Tessera, Inc.’s motion for summary judgment and denying PTI’s motion for entry of judgment under Federal Rule of Civil Procedure 54(b). The Court stated that because of the close relationship between this case and Civil Action No. 4:11-06121-CW, the Court intends to delay entry of judgment until judgment can be entered in both cases simultaneously.

Powertech Technology Inc. v. Tessera, Inc., Civil Action No. 4:11-06121-CW (N.D. Cal.)

On December 6, 2011, PTI filed a complaint against Tessera, Inc. in the U.S. District Court for the Northern District of California. PTI’s complaint seeks a declaratory judgment that PTI has the right to terminate its license with Tessera, Inc. as of December 6, 2011. The complaint also seeks damages for breach of contract in the amount of all royalties paid to Tessera, Inc.

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since December 7, 2007, purportedly totaling at least $200 million, in addition to an accounting of PTI’s damages, an accounting of Tessera, Inc.’s revenue from PTI, prejudgment interest, costs and fees, and other relief deemed proper. Tessera, Inc. disagrees with the assertions made by PTI in the complaint regarding breach of contract, and believes the likelihood that Tessera, Inc. will be required to return already-paid royalties is remote.

On December 15, 2011, the case was related to Powertech Technology Inc. v. Tessera, Inc ., Civil Action No. 4:10-00945-CW (N.D. Cal.), discussed above.

On December 30, 2011, Tessera, Inc. filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted and a special motion to strike pursuant to California’s anti-SLAPP statute. The Court denied Tessera, Inc.’s motions on May 21, 2012.

The district court held a Case Management Conference on January 4, 2012. The court issued a Minute Order and Case Management Order dated January 4, 2012, setting, among other things, a fact discovery cut-off date of January 18, 2013 and a trial date of April 7, 2014.

On June 3, 2012, PTI filed an amended complaint against Tessera, Inc., adding claims for fraud and deceit, patent misuse, and a declaratory judgment interpreting PTI’s license agreement with Tessera, Inc. In addition to the damages sought by PTI’s original complaint, the amended complaint seeks punitive damages for fraud, termination of the Tessera, Inc. license as of September 24, 2010, recovery of all royalties paid on wBGA products since September 24, 2010, and an order “enjoining Tessera, Inc. and directing that Tessera, Inc. may not proceed against any party,… under any Tessera Patent as defined by Exhibit A to the TCC License with all amendments, supplements, and additions through September 28, 2010 until Tessera has first paid PTI all of the royalties paid on wBGA products by PTI since September 24, 2010, presently estimated to be $40 million.” Tessera, Inc. filed a motion to dismiss PTI’s claim for patent misuse and to strike portions of PTI’s claim for fraud on June 19, 2012. On August 10, 2012, the Court granted in part and denied in part Tessera, Inc.’s motion, specifically dismissing the patent misuse claim and striking the fraud claim, and granted PTI leave to file an amended and supplemental complaint.

On June 29, 2012, PTI sent a letter to Tessera, Inc. purporting to terminate the TCC License Agreement as of June 30, 2012.

On August 24, 2012, PTI filed a third amended complaint. In addition to the claims and recovery alleged in its earlier complaints, the third amended complaint contained an amended fraud claim and an amended patent misuse claim. The new fraud claim sought damages at least in the amount of the royalty payments made to Tessera, Inc. after December 7, 2007, and punitive damages. The new patent misuse claim asked for declarations that Tessera has engaged in patent misuse, that the agreement is unenforceable against PTI until Tessera, Inc. has purged the patent misuse, and that the Tessera, Inc. patents are unenforceable against PTI until Tessera, Inc. has purged the patent misuse. Tessera, Inc. answered that complaint on September 10, 2012. Also on September 10, 2012, Tessera, Inc. filed counterclaims against PTI for breach of contract, breach of the implied covenant, fraud, negligent misrepresentation, declaratory judgment of indemnification, and declaratory judgment regarding PTI’s asserted termination of the agreement.

On July 20, 2012, PTI filed a motion for summary judgment on PTI’s first claim for relief in this case. On August 9, 2012, Tessera, Inc. filed an opposition to PTI’s motion and filed its own motion for summary judgment on PTI’s first, second and third claims on the ground, among others that under the unambiguous language of the agreement Tessera, Inc. did not breach the agreement by filing and pursing its claims in the ‘630 ITC Action.

On September 20, 2012, the court heard arguments on PTI’s July 20, 2012 summary judgment motion and Tessera, Inc.’s August 9, 2012 summary judgment motions and took the motions under submission. On October 2, 2012, the parties stipulated to the court’s taking the motions off calendar, and that same day, the court entered an order taking the motions off calendar until such date as the court determines the motions should be decided or the presently-set date for hearing summary judgment motions of December 5, 2013.

On Oct. 23, 2012, the Court granted PTI leave to file its fourth amended and supplemental complaint. PTI’s fourth amended complaint adds an allegation to PTI’s claim for declaratory relief seeking the recovery and return of royalty payments made to Tessera, Inc. from at least March 2010 in an amount exceeding $130 million and continues to seek the recovery sought in PTI’s third amended complaint.

On February 6, 2013, the parties stipulated to Tessera, Inc.’s filing Amended Counterclaims adding claims for fraudulent transfer, intentional interference with prospective economic advantage and negligent interference with economic advantage, and seeking damages, punitive damages, to void the fraudulent transfer of PTI’s business to MTI, to enjoin PTI from any such transfers in the future, and attorneys’ fees and costs. The parties further stipulated to PTI’s filing of a response to Tessera, Inc.’s counterclaims adding affirmative defenses of nonoccurrence of conditions precedent, unilateral contract, and mistake. On

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March 8, 2013, the Court gave Tessera, Inc. leave to file the Amended Counterclaims. On March 21, 2013, PTI filed an answer to the Amended Counterclaims.

On March 19, 2013, the parties stipulated to Tessera, Inc.’s Second Amended Counterclaims to add MTI as a party, and to add Tessera, Inc.’s claims of intentional interference with prospective economic advantage, negligent interference with economic advantage, inducing breach of contract, and constructive trust against MTI, which seek damages, punitive damages, attorneys’ fees and costs, and an order that the royalties owed by MTI be held in a trust for Tessera, Inc. On March 21, 2013, the Court entered an order giving Tessera, Inc. leave to file the Second Amended Counterclaims. On March 28, 2013, PTI and MTI filed answers to the Second Amended Counterclaims.

Tessera, Inc. v. Macrotech Technology Inc., Civil Action No. 4:13-00555-KAW (N.D. Cal.)

On February 7, 2013, Tessera, Inc. filed a complaint against Macrotech Technology Inc. (“MTI”) in the United States District Court for the Northern District of California. Tessera, Inc.’s complaint names as defendant MTI and alleges that MTI induced PTI to breach its contract with Tessera, Inc., and intentionally and negligently interfered with Tessera, Inc.’s prospective economic relationships. Tessera, Inc. seeks damages as well as the imposition of a constructive trust on certain amounts owed to Tessera, Inc. On March 29, 2013, in view of the March 19, 2013 stipulation discussed above in connection with Civil Action No. 4:11-06121-CW, Tessera, Inc. dismissed its claims against MTI in this case without prejudice. This proceeding is now concluded.

Contingency fee dispute for the case of Tessera Technologies, Inc. v. Hynix Semiconductor Inc. et. al, Case No. 1-06-CV-076688 (Cal. Super. Ct.)

Tessera Technologies, Inc. has a dispute with its former counsel Susman Godfrey L.L.P. (“Susman”) over the amount due to Susman, if any, as a contingency fee for Susman’s work in the matter of Tessera Technologies, Inc. v. Hynix Semiconductor Inc. Susman has requested arbitration of the dispute. No arbitration date has been scheduled. On March 25, 2013 the arbitrator set a February 3, 2014 trial date.

Tessera, Inc. v. UTAC (Taiwan) Corporation, Civil Action No. 5:10-04435-EJD (N.D. Cal.)

On September 30, 2010, Tessera, Inc. filed a complaint against UTAC (Taiwan) Corporation (“UTAC Taiwan”) in the United States District Court for the Northern District of California. Tessera, Inc.’s complaint names as defendant UTAC Taiwan and alleges causes of action for breach of contract, declaratory relief, and breach of the implied covenant of good faith and fair dealing. The complaint requests of the Court, among other things, a judicial determination and declaration that UTAC Taiwan remains contractually obligated to pay royalties to Tessera, Inc., an accounting and restitution in an amount to be determined at trial, and an award of damages in an amount to be determined at trial, plus interest on damages, costs, disbursements, attorneys’ fees, and such other and further relief as the Court may deem just and proper.

On March 16, 2011, UTAC Taiwan filed a motion to dismiss the complaint. On March 28, 2012, the Court granted UTAC Taiwan’s motion with leave to amend. On April 19, 2012, Tessera, Inc. filed an amended complaint against UTAC Taiwan alleging in further detail causes of action for breach of contract, declaratory relief and breach of the implied covenant of good faith and fair dealing. The amended complaint seeks the same relief as the original complaint. On May 22, 2012 UTAC Taiwan filed its answer and counterclaim to Tessera, Inc.’s amended complaint. Tessera, Inc. filed its reply to UTAC’s counterclaim, asserting affirmative defenses, on June 21, 2012.

The Court issued its case management order on June 26, 2012, setting the schedule for the case. On January 3, 2013 the Court granted a stipulation by the parties to extend the case schedule. On February 13, 2013, the Court granted a stipulation by the parties further extending the case schedule.

Tessera, Inc. v. Sony Electronics, Inc. et al., Civil Action No. 1:10-CV-838-RMD-KW (D. Del.)

On October 1, 2010, Tessera, Inc. filed a complaint against Sony Electronics, Inc., Sony Corporation, and Renesas Electronics Corporation (“Renesas”) in the United States District Court for the District of Delaware. On May 23, 2011, Tessera, Inc. filed an Amended Complaint. On October 28, 2011, Tessera, Inc. filed a Second Amended Complaint. On March 6, 2012, Tessera, Inc. filed a Third Amended Complaint, adding allegations against Sony Mobile Communications AB and Sony Mobile Communications (USA) Inc.

Tessera, Inc.’s Third Amended Complaint alleges that Sony Electronics, Inc., Sony Corporation, Sony Mobile Communications AB and Sony Mobile Communications (USA) Inc. (collectively, “Sony”) and Renesas infringed and are currently infringing, including by directly infringing, contributorily infringing and/or inducing infringement, U.S. Patent Nos. 6,885,106 (the “106 patent”) and 6,054,337 (the “337 patent”). The complaint requests of the Court, among other things, a judgment that the

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defendants willfully infringed, induced others to infringe, and/or committed acts of contributory infringement of one or more claims of U.S. Patent Nos. 6,885,106 and 6,054,337; an order that defendants, their affiliates, subsidiaries, directors, officers, employees, attorneys, agents, and all persons in active concert or participation with any of them be preliminarily and permanently enjoined from further acts of infringement, inducing infringement, and contributory infringement of U.S. Patent Nos. 6,885,106 and 6,054,337; an order for an accounting; and an award of damages that result from the defendants’ infringing acts, interest on damages, costs, expenses, attorneys’ fees and such other and further relief as the Court deems just and proper.

On June 17, 2011, Renesas filed an Answer and Counterclaims to Tessera, Inc.’s Amended Complaint; in its filing, Renesas, among other things, denies infringement of U.S. Patent Nos. 6,885,106 and 6,054,337, alleges invalidity of U.S. Patent Nos. 6,885,106 and 6,054,337 and unenforceability of U.S. Patent No. 6,885,106, alleges that Tessera, Inc. is not entitled to any injunctive relief, and requests an award to Renesas of its attorneys’ fees and costs.

On July 11, 2011, Tessera, Inc. filed a motion to dismiss Renesas’s counterclaim of inequitable conduct and to strike Renesas’s affirmative defense of inequitable conduct. On March 30, 2012 the Court denied the motion because it was based on an answer to a now-moot prior complaint. On July 12, 2011, Renesas filed a motion to transfer the case to the Northern District of California. On March 30, 2012 the Court denied the motion.

On March 19, 2012, Sony filed an Answer to Tessera, Inc.’s Third Amended Complaint and certain Sony parties filed Counterclaims; in its filing, Sony, among other things, denies infringement of U.S. Patent Nos. 6,885,106 and 6,054,337 and alleges invalidity of U.S. Patent Nos. 6,885,106 and 6,054,337. Sony also alleges that Tessera, Inc.’s claims are precluded to the extent any allegedly infringing products are supplied directly or indirectly to Sony by an entity or entities having an express or implied license to the patents-in-suit, to the extent any allegedly infringing products are supplied, directly or indirectly, by Sony to an entity or entities having an express or implied license to the patents-in-suit, and/or to the extent Tessera, Inc.’s claims are otherwise precluded by the doctrine of patent exhaustion. Sony also requests an award of its attorneys’ fees and costs. On April 12, 2012, Tessera, Inc. filed an Answer to the Sony parties’ Counterclaims, denying that they are entitled to any relief on their Counterclaims.

On April 20, 2012, Renesas filed an Answer and Counterclaims to Tessera, Inc.’s Third Amended Complaint. In its filing, Renesas, among other things, denies infringement of U.S. Patent Nos. 6,885,106 and 6,054,337, alleges invalidity of U.S. Patent Nos. 6,885,106 and 6,054,337 under 35 U.S.C. §§ 102, 103, and 112, alleges invalidity of U.S. Patent No. 6,885,106 for improper double patenting, alleges unenforceability of U.S. Patent No. 6,885,106 due to inequitable conduct, alleges that Tessera, Inc. is not entitled to any injunctive relief, and requests an award to Renesas of its attorneys’ fees and costs. On May 14, 2012, Tessera, Inc. filed an Answer to Renesas’s Counterclaims, denying that Renesas is entitled to any relief on its Counterclaims.

On June 17, 2011, Sony filed a request with the U.S. Patent and Trademark Office ("PTO") for inter partes reexamination of U.S. Patent No. 6,885,106, and on September 24, 2012, Sony filed a petition with the PTO for inter partes review of U.S. Patent No. 6,054,337, as discussed in greater detail in the “ Reexamination Proceedings ” section below. On October 11, 2012, Sony filed a motion to stay the litigation pending completion of proceedings on both asserted patents before the PTO. On November 27, 2012, Tessera, Inc., Sony, and Renesas submitted to the Court a stipulated order whereby each party agreed to dismiss with prejudice its claims and counterclaims regarding U.S. Patent No. 6,885,106, each party to bear its own fees and costs, and to stay the litigation until the earlier of: (1) The Patent Trial and Appeal Board’s (“PTAB”) denial of Sony’s Petition for inter partes review of U.S. Patent No. 6,054,337, or (2) the confirmation by the PTAB of claim 27 or claim 28 of U.S. Patent No. 6,054,337. As part of the stipulation, Renesas agreed not to assert invalidity of U.S. Patent No. 6,054,337 in the litigation based on prior art raised unsuccessfully in the inter partes review of U.S. Patent No. 6,054,337. The parties otherwise expressly reserved all rights and made no admissions. On December 11, 2012, the Court entered the parties’ stipulated order.

Tessera, Inc. v. Sony Corporation, Civil Action No. 5:11-04399-EJD (N.D. Cal.)

On May 26, 2011, Tessera, Inc. filed a complaint against Sony Corporation in the California Superior Court for Santa Clara County. Tessera, Inc.’s complaint alleges breach of contract and breach of the covenant of good faith and fair dealing claims against Sony Corporation. Tessera, Inc. contends that Sony Corporation failed to abide by the terms of a royalty-bearing technology license agreement between the parties. Tessera, Inc. contends that it commissioned an audit of payments due by Sony Corporation under the agreement, delivered an audit report to Sony Corporation on February 14, 2011, and that Sony Corporation has failed to pay the amounts the auditors found due. Tessera, Inc. requests its damages, plus interest, costs and attorney’s fees. Sony Corporation removed the case to federal district court (Northern District of California) on September 2, 2011. On September 8, 2011, Sony Corporation filed an answer and defenses to Tessera, Inc.’s complaint, and a counterclaim alleging breach of the implied covenant of good faith and fair dealing. On January 31, 2012, the Court issued a Case Management Order, setting various case deadlines, including scheduling a Preliminary Pretrial Conference for February 22, 2013. On October 10, 2012 Sony Corporation filed a motion requesting leave to file an Amended Answer, which proposes

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adding counterclaims against Tessera, Inc. for fraud, violation of Cal. Bus. & Prof. Code 17200, and civil conspiracy. On January 7, 2013, the Court denied Sony Corporation’s motion for leave to file an Amended Answer and issued an order resetting various case deadlines, including rescheduling the Preliminary Pretrial Conference to March 22, 2013.On March 22, 2013, following the Preliminary Pretrial Conference, the Court entered a Pretrial Order, scheduling the Final Pretrial Conference for September 27, 2013 and the trial to commence on October 28, 2013.

Invensas Corporation v. Renesas Electronics Corporation, Civil Action No. 1:11-CV-00448-GMS-CJB (D. Del.)

On May 23, 2011, Invensas filed a complaint against Renesas in the United States District Court for the District of Delaware. Invensas’s complaint alleges that Renesas has infringed and is currently infringing, including by directly infringing, contributorily infringing and/or inducing infringement, U.S. Patent Nos. 6,777,802, 6,825,554, 6,566,167, and 6,396,140. The complaint requests of the Court, among other things, a judgment that Renesas has willfully infringed, induced others to infringe, and/or committed acts of contributory infringement of one or more claims of U.S. Patent Nos. 6,777,802, 6,825,554, 6,566,167, and 6,396,140; an order that Renesas, its affiliates, subsidiaries, directors, officers, employees, attorneys, agents, and all persons in active concert or participation with any of them be preliminarily and permanently enjoined from further acts of infringement, inducing infringement, or contributory infringement of U.S. Patent Nos. 6,777,802, 6,825,554, 6,566,167, and 6,396,140; an order for an accounting; and an award of damages that result from Renesas’s infringing acts, interest on damages, costs, expenses, attorneys’ fees and such other and further relief as the Court deems just and proper.

On October 28, 2011, Renesas filed an Answer and Counterclaims to Invensas’s Complaint. In its filing, Renesas, among other things, denies infringement of U.S. Patent Nos. 6,777,802, 6,825,554, 6,566,167, and 6,396,140, alleges invalidity of these same patents, alleges that Invensas is not entitled to any injunctive relief, alleges that Invensas’s claims for damages are limited or barred, alleges that the court lacks personal jurisdiction over Renesas, and seeks an award to Renesas of attorneys’ fees and costs. On November 21, 2011, Invensas filed an Answer to Renesas’s Counterclaims.

On June 4, 2012, the Court issued a Case Management Order, setting various case deadlines. On April 24, 2013, the Court granted Invensas's motion for leave to amend its complaint to name Renesas Electronics America Inc. as an additional defendant. Pretrial conference and trial dates have not yet been set.

Reexamination Proceedings

On February 9, 2007 and February 15, 2007, SPIL filed with the PTO requests for inter partes reexamination relating to U.S. Patent Nos. 6,433,419 and 6,465,893, and ex parte reexamination relating to U.S. Patent Nos. 5,679,977, 6,133,627 and 5,852,326. On April 19, 2007, the PTO granted the requests for ex parte reexamination. On May 4, 2007, the PTO granted the requests for inter partes reexamination.

The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,465,893 initially rejecting a number of patent claims on May 4, 2007. The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,433,419 initially rejecting a number of the patent claims on June 5, 2007, to which a response was filed by Tessera, Inc. on August 6, 2007. On March 14, 2007, SPIL filed a second request for ex parte reexamination of U.S. Patent No. 5,679,977. The PTO granted this request on June 12, 2007.

On May 21, 2007, Amkor Technology, Inc. (“Amkor”) filed a request for ex parte reexamination of U.S. Patent No. 5,861,666. On July 26, 2007, the PTO granted this request. On June 11, 2007, Amkor filed additional requests for reexamination regarding U.S. Patent Nos. 5,679,977 and 6,133,627. The PTO granted the request for reexamination as to the 5,679,977 patent on August 15, 2007, and the PTO granted the requests for reexamination as to the 6,133,627 patent on August 13, 2007.

A first official action rejecting some claims and confirming other claims as patentable was mailed February 21, 2008 in the reexamination of U.S. Patent No. 5,852,326. A second office action rejecting some claims and confirming other claims as patentable was mailed on August 1, 2008. A third, final official action rejecting all claims under reexamination was mailed on March 6, 2009. An advisory action was mailed by the PTO on June 22, 2009, maintaining all of the rejections presented in the Action of March 6, 2009. On July 1, 2009, Tessera, Inc. filed a petition to withdraw the finality of the official action mailed on March 6, 2009. The PTO issued a decision on July 10, 2009 dismissing Tessera, Inc.’s petition of July 1, 2009. Tessera, Inc. filed a Notice of Appeal on August 6, 2009, and timely filed an appeal brief on October 13, 2009. The PTO’s Answer to Tessera, Inc.’s appeal brief was mailed on May 28, 2010. On November 16, 2010, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, finding the original claims subject to reexamination to be patentable. The Reexamination Certificate issued on March 1, 2011, confirming that all of the original claims subject to reexamination are patentable and terminating the reexamination proceeding.

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A first official action was mailed February 22, 2008 in the reexamination of U.S. Patent No. 5,861,666 rejecting those claims which were subject to reexamination. Such official action was superseded by a substantively identical action mailed March 11, 2008 restarting the period for response. A second official action was mailed on September 30, 2008. On March 13, 2009, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, after which a Supplemental Notice of Intent to Issue Ex Parte Reexamination Certificate (Corrected Status) was issued on April 2, 2009, finding certain amended and newly presented claims to be patentable. The Reexamination Certificate issued on June 30, 2009.

On February 12, 2008, the PTO issued decisions merging the three reexaminations of U.S. Patent No. 5,679,977 with one another and also merging the two reexaminations of U.S. Patent No. 6,133,627 with one another.

A first official action was issued on February 29, 2008 in the merged reexaminations of U.S. Patent No. 6,133,627, rejecting those claims subject to reexamination. On August 10, 2008, the PTO issued a second official action, to which Tessera, Inc. filed a Request to Vacate the Second Official Action on August 26, 2008 on procedural grounds. As a result, on September 11, 2008, the PTO issued a third non-final official action. A first official action was issued on March 28, 2008 in the merged reexaminations of U.S. Patent No. 5,679,977, rejecting those claims subject to reexamination. On October 10, 2008, the PTO issued a second non-final official action. On October 1, 2009, the PTO issued a final official action. On January 14, 2010, the PTO issued an Advisory Action indicating that Tessera, Inc.’s response of December 1, 2009 failed to overcome all of the rejections set forth in the final official action mailed October 1, 2009. Tessera, Inc. filed a Notice of Appeal on February 1, 2010, and timely filed an appeal brief on April 5, 2010. The PTO’s Answer to Tessera, Inc.’s appeal brief withdrew certain rejections previously applied to the claims, but continued to apply other rejections as to all claims under reexamination. On December 14, 2010, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, finding the original claims subject to reexamination to be patentable and canceling the newly presented claims. The Reexamination Certificate issued on March 15, 2011, confirming that all of the original claims subject to reexamination are patentable and terminating the reexamination proceeding.

On February 19, 2008, the PTO issued a second official action maintaining the rejections in U.S. Patent No. 6,433,419. On March 10, 2008, Tessera, Inc. filed a petition to vacate the second official action in the reexamination of U.S. Patent No. 6,433,419 on the ground that the second official action did not properly take account of an amendment to the specification of U.S. Patent No. 6,433,419. On June 3, 2008, Tessera, Inc. filed a renewed petition to vacate the inter partes reexamination on the ground that the request for such reexamination did not name the real party in interest. The petition was denied on September 10, 2008. On June 13, 2008, the PTO issued a third official action in the inter partes reexamination of U.S. Patent No. 6,433,419 which was denominated as an action closing prosecution. A Right of Appeal Notice was issued on September 17, 2008, and Tessera, Inc. filed a Notice of Appeal on October 17, 2008. On November 3, 2008, the PTO issued a decision withdrawing the Right of Appeal Notice and returning the case to the examiner for issuance of a further action. On December 23, 2008, the PTO issued a non-final official action, also denominated as an action closing prosecution. A Right of Appeal Notice was issued on June 19, 2009. On July 1, 2009, Tessera, Inc. filed a petition to withdraw the Right of Appeal Notice. Having not yet received a decision on the petition of July 1, 2009, Tessera, Inc. filed a Notice of Appeal on July 20, 2009. On July 30, 2009, the PTO issued a decision dismissing Tessera, Inc.’s petition of July 1, 2009. Tessera, Inc. timely filed an appeal brief on October 5, 2009. The PTO’s Answer to Tessera, Inc.’s appeal brief was mailed on July 13, 2010. On January 17, 2011, Tessera, Inc. filed a petition to reopen prosecution due to new developments after the close of briefing in the appeal which include actions by the PTO in other reexaminations and a new holding by the Court of Appeals for the Federal Circuit in an appeal from a decision of the International Trade Commission concerning U.S. Patent No. 6,433,419. On February 25, 2011, the PTO issued a decision granting in part Tessera, Inc.’s petition to the extent that prosecution of the reexamination proceedings in connection with U.S. Patent No. 6,433,419 was reopened. On March 11, 2011, the PTO issued a fourth official action in the inter partes reexamination of U.S. Patent No. 6,433,419 which was denominated an action closing prosecution. The official action of March 11, 2011 confirmed that all of the claims subject to reexamination are patentable. A Right of Appeal Notice was issued on May 3, 2011, and SPIL filed a Notice of Appeal on June 2, 2011. On November 15, 2011, the Examiner mailed an Examiner’s Answer maintaining all positions set forth in the Right of Appeal Notice issued on May 3, 2011. An oral hearing in the appeal was held on September 19, 2012 at the PTO in Alexandria, VA. On December 21, 2012, Tessera, Inc. filed a petition for the entry of additional evidence after appeal. SPIL filed an opposition to Tessera, Inc.’s December 21, 2012 petition on January 2, 2013. On January 28, 2013, the Patent Trial and Appeal Board denied Tessera Inc.’s December 21, 2012 petition and dismissed SPIL’s January 2, 2013 opposition to same. On December 21, 2012, the Patent Trial and Appeal Board issued a Decision on Appeal, reversing the Examiner’s favorable decision of patentability, by rejecting all of the claims subject to reexamination on a new ground. On January 4, 2013, the Patent Trial and Appeal Board granted a petition filed by Tessera, Inc. on December 28, 2012 to extend Tessera, Inc.‘s deadline for responding to the Decision on Appeal to February 21, 2013. On February 21, 2013, Tessera Inc. filed a response and request to reopen prosecution. On March 21, 2013, SPIL filed comments in response to Tessera, Inc.’s February 21 response and request to reopen prosecution.

On February 15, 2008, the PTO issued a second official action, also denominated as an action closing prosecution, maintaining the rejections of U.S. Patent No. 6,465,893. On March 28, 2008, Tessera, Inc. filed a petition to vacate the second official

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action in the reexamination of U.S. Patent No. 6,465,893 on the ground that the second official action did not properly take account of an amendment to the specification of U.S. Patent No. 6,465,893. On June 9, 2008, Tessera, Inc. filed a renewed petition to vacate the inter partes reexamination on the ground that the request for such reexamination did not name the real party in interest, which petition was denied on September 10, 2008. On August 21, 2008, a non-final office action was issued. On February 5, 2009, the PTO issued a non-final official action, also denominated as the second action closing prosecution. A Right of Appeal Notice was issued on June 22, 2009. Tessera, Inc. filed a Notice of Appeal on July 22, 2009. On November 10, 2010, the PTO issued an action closing prosecution confirming certain of the original claims subject to reexamination as patentable and rejecting other claims subject to reexamination. A second Right of Appeal Notice was issued on February 18, 2011. Tessera, Inc. filed a Notice of Appeal on March 3, 2011, and SPIL filed a Notice of Cross Appeal on March 7, 2011. On August 22, 2011, the examiner mailed an examiner’s answer maintaining all positions set forth in the Right of Appeal Notice issued on February 18, 2011. An oral hearing in the appeal was held on September 19, 2012 at the PTO in Alexandria, VA. On December 21, 2012, Tessera, Inc. filed a petition for the entry of additional evidence after appeal. SPIL filed an opposition to Tessera, Inc.’s December 21, 2012 petition on January 2, 2013. On January 28, 2013 the Patent Trial and Appeal Board denied Tessera Inc.’s December 21, 2012 petition and dismissed SPIL’s January 2, 2013 opposition to same. On December 21, 2012, the Patent Trial and Appeal Board issued a Decision on Appeal, affirming the Examiner’s previous holding of unpatentability as to some claims, reversing the Examiner’s favorable decision of patentability as to other claims by rejecting those claims on new grounds of rejection, and affirming the Examiner’s favorable decision of patentability as to still other claims. On January 4, 2013, the Patent Trial and Appeal Board granted a petition filed by Tessera, Inc. on December 28, 2012 to extend Tessera, Inc.’s deadline for responding to the Decision on Appeal to February 21, 2013. On February 21, 2013, Tessera Inc. filed a request to reopen prosecution. On March 21, 2013, SPIL filed comments in response to Tessera, Inc.’s February 21 request to reopen prosecution.

On March 26, 2008, a request for a third ex parte reexamination of U.S. Patent No. 6,133,627 patent was filed, ostensibly by PowerChip Semiconductor Corporation (“Powerchip”). On May 2, 2008, the PTO granted this request. On November 18, 2008, the PTO issued a first non-final official action. On February 13, 2009, the PTO issued an order merging all of the reexaminations of U.S. Patent No. 6,133,627. On March 17, 2009, the PTO issued a non-final official action rejecting all claims under reexamination. On July 14, 2009, the PTO issued a final official action which held certain claims patentable but rejected other claims. On December 1, 2009, the PTO issued an Advisory Action indicating that Tessera, Inc.’s response of August 14, 2009 failed to overcome all of the rejections set forth in the final official action mailed July 14, 2009. Tessera, Inc. filed a Notice of Appeal on December 14, 2009. The PTO’s Answer to Tessera, Inc.’s appeal brief was mailed on May 28, 2010. On November 16, 2010, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, finding the original claims subject to reexamination to be patentable and canceling the newly presented claims. The Reexamination Certificate issued on March 1, 2011, confirming that all of the original claims subject to reexamination are patentable and terminating the reexamination proceeding.

On April 2, 2008, a request for inter partes reexamination of Tessera, Inc.’s U.S. Patent No. 6,458,681 was filed, ostensibly by Powerchip. On June 6, 2008, the PTO granted this request and issued an official action rejecting certain claims of the ‘681 patent. On September 21, 2009, the PTO issued an Action Closing Prosecution rejecting certain claims and holding one claim patentable. A Right of Appeal Notice was issued on February 22, 2010. On July 20, 2010, the PTO issued a Notice of Intent to Issue Inter Partes Reexamination Certificate, canceling the claims subject to reexamination. The reexamination certificate was issued on October 26, 2010. On March 22, 2010, Tessera, Inc. filed an application for reissue of the ‘681 patent to further address the matters raised during the reexamination proceedings and to pursue additional claims. On May 22, 2012, the reissue application issued as U.S. Patent No. RE43,404, which included certain amended claims from the ‘681 patent and new claims, and which canceled other claims from the ‘681 patent.

On July 18, 2008, a request for ex parte reexamination of Tessera, Inc.’s U.S. Patent No. 5,663,106 was filed, ostensibly by Powerchip. On September 4, 2008, the PTO granted the request for reexamination. On April 10, 2009, the PTO issued a non-final official action rejecting all claims under reexamination. On November 19, 2009, the PTO issued a final official action finding certain claims patentable and rejecting other claims. On April 7, 2010, the PTO issued a non-final official action withdrawing the rejections previously made but rejecting all claims under reexamination on new grounds. On October 18, 2010, the PTO issued a new final official action. An advisory action was mailed by the PTO on March 17, 2011, finding certain claims patentable and maintaining the remainder of the rejections presented in the October 18, 2010 action. Tessera, Inc. filed a Notice of Appeal on April 18, 2011. On July 6, 2011, Tessera, Inc. filed a petition with the PTO to allow a first reissue application filed with the claims held to be patentable in the present reexamination proceeding, and to merge a second reissue application filed with the claims involved the present reexamination proceeding with the present proceeding. On January 18, 2012, the PTO issued a decision dismissing Tessera, Inc.’s July 6, 2011 petition and suspending the first and second reissue applications pending conclusion of the ex parte reexamination proceeding of U.S. Patent No. 5,663,106. The PTO’s Answer to Tessera, Inc.’s appeal brief was mailed on February 17, 2012. On July 9, 2012, Tessera, Inc. filed a request for the Board to dismiss the appeal of U.S. Patent No. 5,663,106 and to return the case to the Examiner for issuance of a Notice of Intent to

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Issue Reexamination Certificate with the presently allowed claims as set forth in the advisory action mailed March 17, 2011. On July 17, 2012, the Board dismissed the appeal and returned the case to the Examiner for further action. On July 30, 2012, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, holding certain claims patentable and canceling certain other claims. On August 3, 2012, Tessera, Inc. expressly abandoned the first and second reissue applications. The Reexamination Certificate issued on September 18, 2012.

On June 17, 2011, a request for inter partes reexamination of U.S. Patent No. 6,885,106 was filed by Sony Corporation and Sony Electronics, Inc. On September 8, 2011, the PTO granted the request for reexamination. On September 20, 2011, the PTO issued a non-final official action rejecting certain claims and confirming certain claims. Tessera, Inc. filed a Petition under 37 C.F.R. § 1.181 to Withdraw the Pending Office Action and Ultra Vires Requirement for Information (Rule 105 Requirement) on November 11, 2011. Tessera, Inc. then filed a response to the September 20, 2011, non-final official action on December 20, 2011. Sony filed responsive comments on January 19, 2012 with a Petition to waive page limits. The PTO dismissed Tessera, Inc.’s Rule 181 Petition as moot because the PTO accepted Tessera, Inc.’s arguments in the Response regarding the Rule 105 requirement. The PTO found Tessera, Inc.’s response non-compliant for exceeding the page limits in a Notice mailed February 22, 2012. Tessera Inc. filed a Response to the Notice and a Petition to waive page limits March 7, 2012. The PTO granted Tessera Inc.’s and Sony’s separate petitions to waive page limits on April 10, 2012. The PTO issued an Action Closing Prosecution (non-final) on April 17, 2012, which rejected certain claims and confirmed certain claims. Tessera, Inc. filed a Petition to Strike Sony’s Comments on April 23, 2012. Sony opposed on May 1, 2012 by withdrawing from the record the challenged proposed rejections. The PTO denied Tessera, Inc.’s Petition on May 25, 2012 based on Sony’s withdrawal. Tessera, Inc. filed a Response to the Action Closing Prosecution on June 18, 2012. Sony’s Comments were filed on July 18, 2012. The PTO found Tessera, Inc.’s June 18, 2012 Response page-limit compliant in a petition decision mailed September 28, 2012.

On January 29, 2013, Tessera, Inc. filed a Statutory Disclaimer in the patent file of U.S. Patent No. 6,885,106 dedicating to the public all of the originally issued claims in U.S. Patent No. 6,885,106. Tessera, Inc. then filed, on February 5, 2013, a Supplemental Amendment in the reexamination that canceled all pending claims and alerted the Examiner to the Statutory Disclaimer. The Supplemental Amendment also sought termination of the inter partes reexamination proceeding. On February 11, 2013, at the specific request of the U.S. Patent and Trademark Office, Tessera, Inc. filed in the reexamination a Notice of Concurrent Proceedings, again alerting the Examiner to the Statutory Disclaimer filed in the patent file of U.S. Patent No. 6,885,106. On February 25, 2013, the PTO mailed a Notice of Intent to issue a Reexamination Certificate (NIRC), which terminated the reexamination and noted the status of the claims as: 1-60 currently disclaimed and 61-155 cancelled.

The following Tessera, Inc. patents expired on September 24, 2010: U.S. Patent Nos. 6,433,419, 6,465,893, 5,679,977, 6,133,627 and 5,852,326. In addition, on September 24, 2011, the EP672 Patent expired. The reexamination proceedings concerning U.S. Patents 6,433,419 and 6,465,893 will continue after expiration. As set forth above, the reexamination proceedings concerning U.S. Patents 5,679,977, 6,133,627 and 5,852,326 have terminated with issuance of reexamination certificates confirming patentability of the original claims subject to reexamination.

European Oppositions

On or about January 3, 2006, Koninklijke Phillips Electronics N.V. and Philips Semiconductors B.V. (“Philips”), MICRON Semiconductor Deutschland GmbH (“Micron GmbH”), Infineon and STMicroelectronics, Inc. (“STM”) filed oppositions to Tessera, Inc.’s European Patent No. EP1111672 (the “EP672 Patent”) before the European Patent Office (the “EPO”). Micron GmbH and Infineon withdrew their oppositions on July 24, 2006 and November 4, 2006, respectively. On December 4, 2006, Phillips withdrew its opposition. On September 16, 2008, the EPO Opposition Division issued a “Summons to attend oral proceedings” which states “preliminary” opinions unfavorable to the claims of the EP672 Patent. An oral hearing before the EPO Opposition Division, was held on June 4, 2009, resulting in a decision to revoke the EP672 Patent. Tessera, Inc. filed a Notice of Appeal on August 24, 2009.

Inter Partes Review Proceedings

On September 24, 2012, Sony filed a petition for inter partes review of Tessera, Inc.’s U.S. Patent No. 6,054,337 (IPR2012-00033). On September 27, 2012, the PTO mailed a Notice accepting the petition filing, which set a December 27, 2012 deadline for Tessera, Inc. to file a preliminary response. Tessera, Inc. filed a patent owner preliminary response on December 26, 2012. On February 26, 2013, the Patent Trial and Appeal Board (PTAB) mailed a Decision initiating a trial for claims 27-29 and 39 on two grounds of patentability.

On April 9, 2013, Amkor Technologies, Inc. filed a petition for inter partes review of Tessera Inc.’s U.S. Patent No. 6,046,076 (IPR2013-00242). On April 12, 2013 the PTO mailed a Notice accepting the petition filing, which set a July 12, 2013 deadline for Tessera, Inc. to file a preliminary response.

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The patents that are subject to the above-described reexamination proceedings include some of the key patents in Tessera, Inc.’s portfolio, and claims that are treated in the current official actions are being asserted in certain of Tessera, Inc.’s various litigations. The Company cannot predict the outcome of these proceedings. An adverse decision could also significantly affect Tessera, Inc.’s ongoing litigations, as described herein, in which patents are being asserted, which in turn could significantly harm the Company’s business and consolidated financial position, results of operations and cash flows.

Insolvency Proceedings over the Estate of Qimonda AG, Local Court of Munich, Insolvency Court, File No. 1542 IN 209/09

On January 23, 2009, Qimonda AG filed a bankruptcy petition with the Local Court of Munich, Insolvency Court. On April 1, 2009, the Court opened insolvency proceedings over the estate of Qimonda AG and appointed Rechtsanwalt Dr. Michael Jaffé as the insolvency administrator.

On or about May 27, 2009, Dr. Jaffé chose non-performance of Tessera, Inc.’s license agreement with Qimonda AG under Section 103 of the German Insolvency Code and purported to terminate the license agreement. On June 12, 2009, Tessera, Inc. filed a Proof of Claim in the Qimonda AG bankruptcy alleging amounts due of approximately 15.7 million Euros. On December 2, 2009, Dr. Jaffé preliminarily contested Tessera, Inc.’s claim in full. On November 15, 2010, Dr. Jaffé acknowledged approximately 7.8 million Euros of Tessera, Inc.’s claim. The amount has been registered with the list of creditors’ claims at the Local Court of Munich, Insolvency Court. However, both the date and the final amount of recovery for unsecured debtors remain uncertain.

Amkor Technology, Inc. v. Tessera, Inc. (ICC Case No. 16531/VRO)

On or about August 7, 2009, Amkor filed a request for arbitration against Tessera, Inc. before the International Chamber of Commerce (“ICC”). The request, among other things, accused Tessera, Inc. of interference with Amkor’s existing and prospective business relationships, of improperly claiming that Amkor had breached the parties’ license agreement, and of improperly threatening to terminate that agreement. Amkor seeks relief including judgment that it is in compliance with the license agreement and is a licensee in good standing under the license agreement; judgment that the license agreement remains in effect and no breach alleged by Tessera, Inc. against Amkor has terminated the license agreement; judgment that Amkor’s method of calculating royalties on a going-forward basis complies with Amkor’s obligations under the license agreement; an injunction against Tessera, Inc. forbidding it from making statements to Amkor’s customers and potential customers inconsistent with the above; an injunction against Tessera, Inc. forbidding it from attempting to terminate the license agreement or threatening to terminate the license agreement during the arbitration or based on events occurring prior to the conclusion of the arbitration; a damage award against Tessera, Inc. for attorneys’ fees and costs to Amkor associated with this arbitration, together with all other damages resulting from Tessera, Inc.’s alleged acts of tortious interference and punitive damages; all other relief recoverable under the Rules of Arbitration of the ICC; such other and further relief as the arbitrators deem just and proper.

On November 2, 2009, Tessera, Inc. filed its answer to the request, including counterclaims. The answer, among other things, denies Amkor’s accusations and accuses Amkor of failing to pay Tessera, Inc. full royalties on products Amkor sold to Qualcomm and potentially others that are subject to ITC injunctions, of refusing to allow Tessera, Inc. to audit in accordance with the parties’ license agreement, of interference with Tessera, Inc.’s prospective economic relationships, of failing to pay royalties or full royalties on products that infringe various U.S. and foreign patents owned by Tessera, Inc., and of violating the implied covenant of good faith and fair dealing. Tessera, Inc. seeks relief including judgment that the license agreement has been breached and that Tessera, Inc. is entitled to terminate the license agreement; judgment that products on which Amkor has not paid the full contractual royalties to Tessera, Inc. are not licensed under Tessera, Inc.’s patents; damages for Amkor’s breaches of the license agreement; damages, including punitive damages, for Amkor’s interference with Tessera, Inc.’s prospective business relationships; interest on any damages; attorneys’ fees and costs incurred by Tessera, Inc.; denial of Amkor’s claims against Tessera, Inc.; an order that awards Tessera, Inc. all other relief recoverable under the rules of Arbitration of the ICC; and an order for such other and further relief as the arbitrators deem just and proper.

On January 15, 2010, Amkor filed its response to Tessera, Inc.’s counterclaims, along with new counterclaims by Amkor and a motion for priority consideration of certain issues. In its responsive pleading, Amkor denied Tessera, Inc.’s counterclaims, arguing in part that Tessera, Inc.’s counterclaims for royalties are barred by the doctrines of collateral estoppel and res judicata, and sought a declaratory judgment that it has not infringed and that its packages are not made under any of the patents asserted in Tessera, Inc.’s answer and that the patents are invalid and unenforceable. Amkor also claimed a credit for royalties it alleges it overpaid Tessera, Inc.

On May 14, 2010, Amkor filed a motion to bar Tessera, Inc.’s counterclaims for royalties before December 1, 2008, as res judicata. The Tribunal ruled on Amkor’s motion on November 15, 2010, granting Amkor’s motion as to Tessera, Inc.’s

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counterclaims for royalties on some products and timeframes at issue, and denying the motion as to other products and timeframes.

On October 20, 2010, Amkor paid Tessera, Inc. approximately $2.3 million to address a portion of the past royalties claimed by Tessera, Inc.

On December 9 and December 10, 2010, the Tribunal held a two-day trial on certain issues in the arbitration, including (1) royalties payable on a going-forward basis for the patents addressed in the previous arbitration, including but not limited to royalties applicable to packages assembled for Qualcomm, Inc.; (2) Tessera, Inc.’s counterclaim for breach of the audit provision of the license agreement; (3) Tessera, Inc.’s claim for breach of the covenant of good faith and fair dealing, to the extent that it is based on issues (1) and (2) above; and (4) the status of Tessera, Inc.’s latest request to terminate the license agreement, to the extent that it is based on issues (1), (2), and (3) above.

On February 17, 2011, Tessera, Inc. sent Amkor an official notice of termination of Amkor’s license agreement with Tessera, Inc. Amkor has disputed Tessera, Inc.’s right to terminate the license agreement.

On March 11, 2011, Tessera, Inc. filed a motion seeking, among other things, to strike Amkor’s defense of invalidity for the time period before Amkor challenged the validity of the asserted patents. The Tribunal granted Tessera, Inc.’s motion on July 1, 2011, striking (1) Amkor’s invalidity and unenforceability defenses to the payment of royalties that accrued under the asserted U.S. patents before those defenses were raised, and (2) Amkor’s invalidity defenses to the payment of royalties due under the asserted foreign patents regardless of when the royalties accrued.

On June 1, 2011, the Tribunal issued an order construing certain claims of the patents-in-suit.

On July 11, 2011, the Tribunal issued a Partial Award on certain issues tried to the Tribunal on December 9-10, 2010. The Tribunal (1) granted Tessera, Inc.’s request for additional royalties due for the patents addressed in the previous arbitration, in an amount to be determined later, but denied Tessera, Inc.’s claim for additional royalties owing from certain packages assembled for customers including Qualcomm, Inc., (2) found that Amkor was in breach of the License Agreement as to its royalty obligations and the audit provision of the license agreement, and (3) deferred a final decision on certain grounds for termination of the license agreement until the second phase of this arbitration has concluded.

On August 15, 2011, pursuant to the parties’ stipulation, the Tribunal entered an Order dismissing with prejudice the parties’ respective tortious interference claims.

A seven-day hearing on the remaining issues was held from August 15, 2011 to August 21, 2011.

On October 17, 2011, the Tribunal issued a Partial Award on certain issues tried to the Tribunal on December 9-10, 2010. The Tribunal awarded Tessera, Inc. approximately $0.5 million associated with additional royalties due for the patents addressed in the previous arbitration.

On July 6, 2012, the Tribunal issued a Partial Award. Among other things, the Partial Award further interpreted the parties’ agreement, found that certain packages were neither licensed nor royalty bearing under the agreement, found that one of the patents at issue in the arbitration was not valid, that seven of the asserted patents were not infringed by the accused Amkor products, that a subset of accused Amkor products did not infringe two additional asserted patents, and that royalties are due under seven of the patents at issue in the arbitration for certain TCC and related integrated circuit packages. In addition, the Tribunal awarded interest to Tessera, Inc., rejected Amkor’s contention that it is in compliance with the license agreement and that it is a licensee in good standing, rejected Amkor’s claim that Tessera, Inc.’s counterclaims were barred by doctrines of laches, waiver, estoppel, unclean hands or the statute of limitations, rejected Amkor’s request to enjoin Tessera, Inc. from behavior outside the arbitral forum, and agreed that Tessera, Inc. was entitled to and did terminate the license agreement as of February 17, 2011. The Tribunal also found that the parties should bear their own attorney’s fees and costs. The Partial Award contains additional rulings not summarized here. Further proceedings are expected to be undertaken to ascertain, among other things, the amount due to Tessera, Inc. consistent with the Partial Award. Tessera, Inc. cannot predict the timing of the damage award(s) that may result. On August 20, 2012, Tessera, Inc. received an initial payment of $19.9 million from Amkor related to the Partial Award the Tribunal issued on July 6, 2012.

On November 27, 2012, the Tribunal issued an Addendum to its Partial Award dated July 6, 2012.

On February 20, 2013, the Tribunal issued another Partial Award. Among other things, the February 20, 2013 Partial Award further interpreted the parties’ agreement and the scope of products covered by the now-terminated license agreement. Further proceedings are expected to ascertain, among other things, the amount due to Tessera, Inc. consistent with the February 20, 2013 Partial Award. Tessera, Inc. cannot predict the timing of the damages award(s) that may result.

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On April 16, 2013, the Tribunal issued an Order laying out a schedule for the exchange of additional discovery and the preparation of a joint expert report in order to finalize the award of damages.

Discovery is proceeding on Tessera, Inc.’s claims for royalties against certain Amkor packages based on certain additional patents Tessera, Inc. has asserted against Amkor. On January 25, 2013 the Tribunal denied Amkor’s motion for partial Summary Judgment seeking to exclude certain packages as not covered by the license agreement.

On April 9, 2013, Amkor filed a request for inter partes review of U.S. Patent No. 6,046,076, one of the patents on which the Tribunal awarded damages as part of the July 6, 2012 Partial Award.

Amkor Technology, Inc. v. Tessera, Inc., Civil Action No. CPF-13-512796 (S.F. Superior Ct.)

On February 27, 2013, Amkor filed a petition in San Francisco Superior Court to correct the July 6, 2012 arbitration award in Amkor Technology, Inc., v. Tessera, Inc., ICC Case No.16531/VRO, to remove the grant of damages from February 2011 to July 2012, or in the alternative to vacate the award. The hearing on this petition is scheduled for May 10, 2013.

Tessera, Inc. v. Amkor Technology, Inc. (ICC Case No. 17976/VRO)

On May 26, 2011, Tessera, Inc. filed an additional request for arbitration against Amkor before the ICC. The request, among other things, alleges that Amkor failed to make a required election under the parties’ license agreement, and that Amkor failed to comply with obligations regarding “Licensee Improvements” under the license agreement. Tessera, Inc. seeks relief including a declaration that Amkor breached the license agreement; that the license agreement was properly terminated on this basis; a declaration that Amkor’s rights to Tessera, Inc.’s patents expired on May 9, 2011 or earlier; the identification and transfer of all Licensee Improvements to Tessera, Inc.; an injunction preventing Amkor from using Licensee Improvements, to the extent it has not complied with the license agreement; damages and/or disgorgement of profits for Amkor’s failure to comply with the license agreement; attorneys’ fees, costs and exemplary damages; and an order for such other and further relief as the Tribunal deems just and proper. In its request, Tessera, Inc. estimated the amount in dispute to be in excess of $1 million.

On July 26, 2011, Amkor filed its response to the request, which, among other things, denies Tessera, Inc.’s allegations, raises various purported defenses, asserts that Tessera, Inc.’s requests for relief should be denied, contends that Tessera, Inc. has breached the license agreement, argues that Amkor is entitled to attorneys’ fees, costs and exemplary damages relating to the allegations set forth in Tessera, Inc.’s request, and asks that the Tribunal order Tessera, Inc. to pay such further relief to Amkor as the Tribunal deems appropriate. Tessera, Inc. filed an answer denying the allegations in Amkor’s response on September 1, 2011.

On April 30, 2013 the ICC upon request of the parties put the matter in abeyance until the earlier of June 30, 2014 or the final resolution of ICC Case No. 16531/VRO.

Tessera, Inc. v. Amkor Technology, Inc., Civil Action No. 1:12-cv-00852-SLR (D. Del.)

On July 6, 2012, Tessera, Inc. filed a complaint against Amkor Technology, Inc. in the United States District Court for the District of Delaware. Tessera, Inc.’s complaint alleges that Amkor has infringed and is currently infringing, including by directly infringing, contributorily infringing and/or inducing infringement of, U.S. Patent No. 6,046,076. The complaint requests of the Court, among other things, a judgment that Amkor has infringed or will infringe, induce others to infringe, and/or commit acts of contributory infringement of one or more claims of U.S. Patent No. 6,046,076; an order that Amkor, its affiliates, subsidiaries, directors, officers, employees, attorneys, agents, and all persons in active concert or participation with any of them be preliminarily and permanently enjoined from further acts of infringement, inducing infringement, or contributory infringement of the U.S. Patent No. 6,046,076; an order that the infringement be adjudged willful and that the damages be increased under 35 U.S.C § 284 to three times the amount found or measured; an order for an accounting; and an award of damages that result from Amkor’s infringing acts, interest on damages, attorneys’ fees and such other and further relief as the Court deems just and proper.

The accused products include, for example and without limitation, infringing vacuum encapsulated and molded underfill semiconductor packages manufactured by Amkor that are not licensed based on the July 6, 2012 arbitration award in Amkor Technology, Inc., v. Tessera, Inc., 16531/VRO. On August 14, 2012, Amkor filed an answer and counterclaims seeking a declaratory judgment that U.S. Patent No. 6,046,076 is not infringed and is invalid. It also interposed affirmative defenses, including but not limited to, non-infringement, invalidity, estoppel, license, patent exhaustion, failure to mark, and laches. Further, Amkor is seeking an award of attorneys’ fees and costs, and such other relief as the Court deems to be just and proper.

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On April 9, 2013, Amkor filed a request for inter partes review of U.S. Patent No. 6,046,076.

On April 29, 2013 Tessera, Inc. filed a reply to Amkor's counterclaims and an additional counterclaim against Amkor regarding infringement of U.S. Patent No. 6,046,076. Tessera, Inc. interposed affirmative defenses, including but not limited to, arbitration and award, res judicata and issue preclusion, failure to state a claim, validity and infringement, and equitable defenses.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

Our revenues are concentrated in a few customers and if we lose any of these customers our revenues could decrease substantially.

We earn a significant amount of our revenues from a limited number of customers. For the three months ended March 31, 2013, there were two customers that each accounted for 10% or more of total revenues. We expect that a significant portion of our revenues will continue to come from a limited number of customers for the foreseeable future. If we lose any of these customers, our revenues could decrease substantially. PTI, one of our customers that accounted for 10% or more of revenue for the year ended December 31, 2012, filed a complaint against Tessera, Inc. in December 2011, seeking a declaratory judgment that PTI had the right to terminate its license agreement due to a breach of contract by Tessera, Inc., and subsequently notified Tessera, Inc. in June 2012 of its purported termination of its license agreement. See Part II, Item 1– Legal Proceedings for additional detail. PTI also notified Tessera, Inc. in its June 2012 letter that PTI would make a final payment under the license agreement in July 2012, which Tessera, Inc. received and is included in our operating results for the year ended December 31, 2012. PTI has ceased payments under the license agreement, which has caused a substantial adverse impact to our royalty revenue as compared to prior periods. If we are not able to replace the revenue from PTI or if we receive an adverse determination in the litigation with PTI, the non-payment by PTI will continue to have a substantial adverse impact on our royalty revenue. In addition, our license agreement with Micron Technology, Inc., another customer that accounted for 10% or more of revenue for the year ended December 31, 2012, expired in May 2012. This expiration has caused a substantial adverse impact to our royalty revenue as compared to periods prior to such expiration. If we are not able to enter into a new license agreement with Micron Technology, Inc., it would continue to have a substantial adverse impact on our royalty revenue.

We expect to continue to be involved in material legal proceedings in the future to enforce or protect our intellectual property rights, including material litigation with existing licensees or strategic partners, which could harm either of our business segments, or both.

From time to time, our efforts to obtain a reasonable royalty through our sales effort does not result in the prospective customer agreeing to license our patents. In those cases, we generally will use litigation in order to secure payment for past infringement and as means of securing future royalties for the use of our patents in the customer’s products. We also litigate to enforce our other intellectual property rights, to enforce the terms of our license agreements, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others and to defend against claims of infringement or invalidity. Our current legal actions, as described in Part II, Item 1 – Legal Proceedings , are examples of disputes and litigation that impact our business. We expect to be involved in similar legal proceedings in the future, including proceedings to ensure proper and full payment of royalties by licensees under the terms of their license agreements.

These existing and any future legal actions may harm either or both of our business segments, and may hinder our ability to independently optimize each of them. For example, they could cause an existing licensee or strategic partner to cease making royalty or other payments to us, or to challenge the validity and enforceability of our patents or the scope of our license agreements, and could significantly damage our relationship with such licensee or strategic partner and, as a result, prevent the adoption of our other Intellectual Property or DigitalOptics technologies by such licensee or strategic partner. Litigation could also severely disrupt or shut down the business operations of our licensees or strategic partners, which in turn would significantly harm our ongoing relations with them and cause us to lose royalty revenues. Moreover, the timing and results of any of our legal proceedings are not predictable and may vary in any individual proceeding.

From time to time we identify products that we believe to infringe our patents. We seek to license the manufacturer of those products but often the manufacturer is unwilling to enter into a license agreement and then we may elect to enforce our patent rights against those products. Litigation stemming from these or other disputes could also harm our relationships with other licensees or our ability to gain new customers, who may postpone licensing decisions pending the outcome of the litigation or dispute, or who may, as a result of such litigation, choose not to adopt our technologies. In addition, these legal proceedings could be very expensive and may reduce or eliminate our profits.

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The costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. These costs may be materially higher than expected, which could adversely affect our operating results and lead to volatility in the price of our common stock. Whether or not determined in our favor or ultimately settled, litigation diverts our managerial, technical, legal and financial resources from our business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from others, limit the value of our licensed technology or otherwise negatively impact our stock price or our business and consolidated financial position, results of operations and cash flows.

Even if we prevail in our legal actions, significant contingencies will exist to their settlement and final resolution, including the scope of the liability of each party, our ability to enforce judgments against the parties, the ability and willingness of the parties to make any payments owed or agreed upon and the dismissal of the legal action by the relevant court, none of which are completely within our control. Parties that may be obligated to pay us royalties could be insolvent or decide to alter their business activities or corporate structure, which could affect our ability to collect royalties from such parties.

Our business could be negatively affected as a result of the proxy contest with Starboard Value or the actions of other activist stockholders.

Starboard Value and Opportunity Master Fund Ltd (“Starboard”) has filed a definitive proxy statement to nominate six individuals for election to our Board of Directors. The proxy contest with Starboard or other activist activities, could adversely affect our business because:

• Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;

• Perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and

• If individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans or to realize value from our acquired or intangible assets, and this could in turn have a material adverse effect on our business prospects and on our results of operations and financial condition.

The proxy contest with Starboard could also cause our stock price to experience periods of volatility.

From time to time we enter into license agreements that have fixed expiration dates and if, upon expiration or termination, we are unable to renew or relicense such license agreements on terms favorable to us, our results of operations could be harmed.

From time to time we enter into license agreements that have fixed expiration dates. Upon expiration of such agreements we need to renew or replace these agreements in order to maintain our revenue base. For example, our license agreement with Micron Technology, Inc. expired in May 2012. Micron Technology, Inc. accounted for 10% or more of revenue for the year ended December 31, 2012 and has since entered into a definitive sponsor agreement to acquire and support Elpida Memory, Inc., a leading DRAM manufacturer, which is expected to close in the first half of 2013 subject to numerous closing conditions and approvals. This expiration has caused a substantial adverse impact to our royalty revenue as compared to periods prior to such expiration. If we fail to replace the expired Micron Technology, Inc. license agreement, it will continue to have a negative impact on our revenue and our results of operations.

Furthermore, we may not be able to continue licensing customers on terms favorable to us, under the existing terms or at all, which would harm our results of operations. While we have expanded our licensable technology portfolio through internal development and patents purchased from third parties, there is no guarantee that these measures will lead to continued royalties. If we fail to continue to do business with our current licensees, our business would be materially adversely affected.

The success of our licensing business is dependent on the quality of our patent portfolios and our ability to create and implement new technologies or expand our licensable technology portfolio through acquisitions.

We derive a significant portion of our revenues from licenses and royalties. The success of our licensing business depends on our ability to continue to acquire and develop high quality patent portfolios. We devote significant resources to sourcing and acquiring patent portfolios and to developing new technologies to address the evolving needs of the semiconductor and the consumer and communication electronics industries and we must continue to do so in the future to remain competitive. The competition for acquiring high quality patent portfolios is intense and there is no assurance that we can continue to acquire such

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patent portfolios on favorable terms. Moreover, developments in our technologies are inherently complex, and require long development cycles and a substantial investment before we can determine their commercial viability. We may not be able to develop and market new or improved technologies in a timely or commercially acceptable fashion. Furthermore, our acquired and developed patents will expire in the future. Our current U.S. issued patents expire at various times from 2013 through 2031. We need to develop or acquire successful innovations and obtain revenue-generating patents on those innovations before our current patents expire, and our failure to do so would significantly harm our business, financial position, results of operations and cash flows.

We are currently involved in litigation and administrative proceedings involving some of our key patents; any invalidation or limitation of the scope of our key patents could significantly harm our business.

As more fully described in Part II, Item 1 – Legal Proceedings, we are currently involved in litigation involving some of our patents. The parties in these legal actions have challenged the validity, scope, enforceability and ownership of our patents. In addition, reexamination requests have been filed in the PTO with respect to patent claims at issue in one or more of our litigation proceedings, and oppositions have been filed against us with respect to our patents in the European Patent Office. Under a reexamination proceeding and upon completion of the proceeding, the PTO may leave a patent in its present form, narrow the scope of the patent or cancel some or all of the claims of the patent. The PTO issued several Official Actions rejecting or maintaining earlier rejections of many of the claims in some of our patents. We are currently asserting these patents and patent claims in litigation and administrative proceedings. If the PTO’s adverse rulings are upheld on appeal and some or all of the claims of the patents that are subject to reexamination are canceled, our business may be significantly harmed. In addition, counterparties to our litigation and administrative proceedings may seek and obtain orders to stay these proceedings based on rejections of claims in the PTO reexaminations, and other courts or tribunals reviewing our legal actions could make findings adverse to our interests, even if the PTO actions are not final.

We cannot predict the outcome of any of these proceedings or the myriad procedural and substantive motions in these proceedings. If there is an adverse ruling in any legal or administrative proceeding relating to the infringement, validity, enforceability or ownership of any of our patents, or if a court or an administrative body such as the PTO limits the scope of the claims of any of our patents, we could be prevented from enforcing or earning future revenues from those patents, and the likelihood that customers will take new licenses and that current licensees will continue to agree to pay under their existing licenses could be significantly reduced. The resulting reduction in license fees and royalties could significantly harm our business, consolidated financial position, results of operations and cash flows, or the trading price of our common stock.

Furthermore, regardless of the merits of any claim, the continued maintenance of these legal and administrative proceedings may result in substantial legal expenses and diverts our management’s time and attention away from our other business operations, which could significantly harm our business. Our enforcement proceedings historically have been protracted and complex. The time to resolution and complexity of our litigation, their disproportionate importance to our business compared to other companies, the propensity for delay in patent litigation, and the potential that we may lose particular motions as well as the overall litigation all could cause significant volatility in our stock price and materially adversely affect our business and consolidated financial position, results of operations and cash flows.

The timing of payments under our license agreements may cause fluctuations in our quarterly or annual results of operations.

From time to time we enter into license agreements that include pricing or payment terms that result in quarter-to-quarter or year-over-year fluctuations in our revenues, such as volume pricing adjustments. The effect of these terms may also cause our aggregate annual royalty revenues to grow less rapidly than annual growth in overall unit shipments in the applicable end market. Additionally, our licensees may fail to pay, delay payment of or underpay what they owe to us under our license agreements, which may in turn require us to enforce our contractual rights through litigation, resulting in payment amounts and timing different than expected based on the terms of our license agreements. This also may cause our licensing revenues to fluctuate on a quarter-to-quarter or year-over-year basis.

Recent changes to U.S. patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office may adversely impact our business.

Our business relies in part on the uniform and historically consistent application of U.S. patent laws and regulations. There are numerous recent changes and proposed changes to the patent laws and proposed changes to the rules of the PTO, which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, on September 16, 2011, President Obama signed the Leahy-Smith America Invents Act which codifies significant changes to the U.S. patent laws, including, among other things, changing from a “first to invent” to a “first inventor to file” system, limiting where a patentee may file a patent suit, requiring the apportionment of patent damages, replacing interference proceedings with

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derivation actions and creating a post-grant opposition process to challenge patents after they have been issued. The effects of these changes on our patent portfolio and business have yet to be determined, as the PTO is still in the process of implementing regulations relating to these changes and the courts have yet to address many of the new provisions. In addition, in recent years, the courts have interpreted U.S. patent laws and regulations differently, and in particular the U.S. Supreme Court has decided a number of patent cases and continues to actively review more patent cases than it has in the past. Some of these changes or potential changes may not be advantageous for us, and may make it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without a license or payment of royalties. These changes or potential changes could increase the costs and uncertainties surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights, and could have a deleterious effect on our licensing program and, therefore, the royalties we can collect.

Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, and we may not receive royalties after that time.

Tessera, Inc.’s license agreement with Texas Instruments, Inc. automatically converts to a fully paid-up license on December 31, 2013, assuming that Texas Instruments complies with all terms and conditions of the license agreement up through its expiration. In addition, Tessera, Inc.’s license agreement with Samsung Electronics Co, Ltd converts to a fully paid-up license after the expiration of its extended term in May 2017. We may not receive further royalties from licensees for any licensed technology under those agreements if they convert to fully paid-up licenses because such licensees will be entitled to continue using some, if not all, of Tessera, Inc.’s relevant intellectual property under the terms of the license agreements without further payment, even if relevant patents are still in effect. If we cannot find another source of revenue to replace the revenues from these license agreements converting to fully paid-up licenses, our results of operations following such conversion would be materially adversely affected.

The current DRAM market conditions are challenging, and if such conditions do not improve, it may have a material adverse effect on our business.

Current conditions in the DRAM market are challenging. From time to time prices for DRAM chips are less than our licensees’ or potential licensees’ variable costs of making that chip. The DRAM market has gone through many cycles of unprofitability, resulting in the bankruptcy, consolidation or discontinuation of DRAM production by many semiconductor companies. For example, Elpida Memory Inc. filed for bankruptcy protection in 2012, and Micron Technology, Inc. has subsequently entered into a definitive sponsor agreement to acquire and support Elpida Memory Inc., which is expected to close in the first half of 2013 subject to numerous closing conditions and approvals. We are unable to predict the effect of the current market conditions on our licensees or potential licensees. The poor profitability, bankruptcy, consolidation or discontinuation of DRAM production by any of these companies could have a material adverse effect on our business.

A significant amount of our royalty revenues comes from a few end markets and products, and our business could be harmed if demand for these market segments or products declines.

A significant portion of our royalty revenues comes from the manufacture and sale of packaged semiconductor chips for dynamic random memories, digital signal processors, application-specific standard product semiconductors, application-specific integrated circuits and memory. In addition, we derive substantial revenues from the incorporation of our technology into mobile devices. If demand for semiconductors in any one or a combination of these market segments or products declines, our royalty revenues will be reduced significantly and our business would be harmed.

The long-term success of our Intellectual Property business is dependent on a royalty-based business model, which is inherently risky.

The long-term success of our Intellectual Property business is dependent on future royalties paid to us by licensees. Royalty payments under our licenses are primarily based upon the number of electrical connections to the semiconductor chip in a package covered by our licensed technology. We also have royalty arrangements in which royalties are paid based on a percent of net sales, a per package, or a per unit sold basis. We are dependent upon our ability to structure, negotiate and enforce agreements for the determination and payment of royalties, as well as upon our licensees’ compliance with their agreements. We face risks inherent in a royalty-based business model, many of which are outside of our control, such as the following:

• the rate of adoption and incorporation of our technology by semiconductor manufacturers and assemblers;

• the willingness and ability of materials and equipment suppliers to produce materials and equipment that support our licensed technology, in a quantity sufficient to enable volume manufacturing;

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• the ability of our licensees to purchase such materials and equipment on a cost-effective and timely basis;

• the demand for products incorporating semiconductors that use our licensed technology;

• the cyclicality of supply and demand for products using our licensed technology;

• the impact of economic downturns; and

• the timing of receipt of royalty reports may not meet our revenue recognition criteria resulting in fluctuation in our results of operations.

It is difficult for us to verify royalty amounts owed to us under our licensing agreements, and this may cause us to lose revenues.

The terms of our license agreements generally require our licensees to document their use of our technology and report related data to us on a quarterly basis. Although our license terms generally give us the right to audit books and records of our licensees to verify this information, audits can be expensive, time consuming, and may not be cost justified based on our understanding of our licensees’ businesses. Our license compliance program audits certain licensees to review the accuracy of the information contained in their royalty reports in an effort to decrease the likelihood that we will not receive the royalty revenues to which we are entitled under the terms of our license agreements, but we cannot give assurances that such audits will be effective to that end.

The future success of our DigitalOptics business depends on our ability to develop our MEMS-based technologies and to partner with third-party manufacturers to produce our MEMS-based components in high volumes and to produce other components of the full camera module.

In March of 2013 we announced that it was no longer necessary for DOC to be a vertically integrated camera module supplier. DOC instead plans to focus its strategy on its MEMS-related technologies and plans to partner with third-party manufacturers to produce our MEMS-based components in high volumes and to produce other components of the full camera module. As part of our DigitalOptics business, we currently derive revenues from licenses to and royalties from our DigitalOptics technologies in consumer electronics, such as mobile phones, digital still cameras, wireless devices, personal computers and other consumer electronics. Our future success depends upon transitioning our image enhancement solutions into the mobile imaging market through delivering revolutionary MEMS-based camera modules through partnerships with other component manufacturers. Any of the following factors could limit the growth of our DigitalOptics technology, and therefore could have an adverse effect on our business and results of operations:

• our ability to innovate and provide solutions at lower costs, with improved performance, or with more enhanced features than our competitors;

• the relevant markets’ rate of adoption of our DigitalOptics technologies;

• our ability to find suitable partners;

• our ability to raise or generate sufficient capital to execute product ramp plans; and

• our competitors who may have superior products or solutions which take away market share or design wins from us.

The markets for semiconductors and related products and camera modules are highly concentrated, and we may have limited opportunities to license our technologies or sell our products.

The semiconductor industry is highly concentrated in that a small number of semiconductor designers and manufacturers account for a substantial portion of the purchases of semiconductor products generally, including our products and products incorporating our technologies. Consolidation in the semiconductor industry may increase this concentration. For example, Micron Technology, Inc. entered into a definitive sponsor agreement to acquire and support Elpida Memory Inc., which is

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expected to close in the first half of 2013 subject to numerous closing conditions and approvals. Accordingly, we expect that licenses of our technologies and sales of our products will be concentrated with a limited number of customers for the foreseeable future. As we acquire new technologies and integrate them into our product line, we will need to establish new relationships to sell these products. Our financial results depend in significant part on our success in establishing and maintaining relationships with, and effecting substantial sales to, these customers. Even if we are successful in establishing and maintaining such relationships, our financial results will be dependent in large part on these customers’ sales and business results. This is also true for the camera module market which is the target market for our DigitalOptics business. In this market, a small number of OEMs account for a substantial portion of purchases of camera-enabled cell phones and other mobile devices. We have been promoting the adoption of our technologies in this market through the supply chain infrastructure by signing licenses with the sensor, lens and camera manufacturers and assemblers. Consolidation of the OEMs may affect our licensees’ ability to maintain or establish relationships with these OEMs through which they sell products incorporating our DigitalOptics technologies. As a result, our financial results could be materially adversely affected.

We make significant investments in new products and services that may not achieve technological feasibility or profitability or that may limit our revenue growth.

We have made and will continue to make significant investments in research, development, and marketing of new technologies, products and services, including MEMS-based autofocus technologies. Investments in new technologies are speculative and technological feasibility may not be achieved. Commercial success depends on many factors including innovativeness and demand for the technology, availability of materials and equipment, selling price the market is willing to bear, competition and effective licensing or product sales. We may not achieve significant revenues from new product and service investments for a number of years, if at all. Moreover, new technologies, products and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced historically or originally anticipated.

We are unable to predict when we will begin to generate meaningful revenue from our MEMS-based technology, if we are able to do so at all.

We have invested a significant amount of our resources into acquiring and developing our MEMS-based technology. We do not yet have meaningful revenues from those technologies, whether through licensing arrangements or product sales. We do not currently have a customer base for MEMS-based technology, and we cannot be certain whether and when these and our other efforts will lead to the generation of meaningful revenue from our MEMS-based technology. If we are unable to do so in a timely fashion, or at all, our business prospects will be significantly impacted and our results of operations and financial condition may be materially and adversely affected.

Competing technologies may harm our business.

We expect that our technologies will continue to compete with technologies of internal design groups at semiconductor manufacturers, assemblers, electronic component and system manufacturers, image sensor and lens manufacturers and camera module companies such as Omnivision Technologies, Inc., Aptina Imaging Corporation, STMicroelectronics, Inc., Samsung Electronics Co, Ltd., and Toshiba Corporation. The internal design groups of these companies create their own packaging, imaging and optics solutions. If these internal design groups design around our patents or introduce unique solutions superior to our technology, they may not need to license our technology. These groups may design technology that is less expensive to implement or that enables products with higher performance or additional features. Many of these groups have substantially greater resources, greater financial strength and lower cost structures which may allow them to undercut our price. They also have the inherent advantage of access to internal corporate strategies, technology roadmaps and technical information. As a result, they may be able to bring alternative solutions to market more easily and quickly.

For our DigitalOptics technologies, our MEMS-based autofocus technology enables high-precision control of a moving lens for autofocus functionality with a small form factor. This technology compete with autofocus technologies including traditional lens-motion-type autofocus, emerging lens-modification-type autofocus, solutions using voice coil motor technology, and also other computational-type autofocus solutions and other solutions and technologies provided by companies such as DxO Labs. Our Micro-optics products such as the diffractive optical elements used in off-axis illumination for lithography, face competition from products offered by other Micro-optics manufacturers such as JenOptik A.G. as well as emerging technologies such as ASML’s FlexRay technology. Our wafer-level camera solution competes with both the traditional lens vendors who enjoy an established supply chain, as well as other wafer-level optics technologies offered by companies such as Heptagon Oy and Anteryon B.V. For the embedded image processing technologies such as Face Detection and our other FaceTools products, our offerings compete with other image processing software vendors such as ArcSoft, Inc. as well as internal design groups of our customers providing similar technologies by employing different approaches. Our competitors in the lens actuator field include VCM manufacturers such as Mitsumi Electric Co., Ltd, Shikoh, and TDK Corporation. We also expect to see other competing technologies emerge.

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In the future, our licensed technologies may also compete with other technologies that emerge. These technologies may be less expensive and provide higher or additional performance. Companies with these competing technologies may also have greater resources. Technological change could render our technologies obsolete, and new, competitive technologies could emerge that achieve broad adoption and adversely affect the use of our technologies and intellectual property.

If we do not successfully further develop and commercialize the technologies we acquire, or cultivate strategic relationships that expand our licensable technology portfolio, our competitive position could be harmed and our operating results adversely affected.

We also attempt to expand our licensable technology portfolio and technical expertise by acquiring and further developing new technologies or developing strategic relationships with others. These strategic relationships may include the right for us to sublicense technology and intellectual property to others. However, we may not be able to acquire or obtain rights to licensable technology and intellectual property in a timely manner or upon commercially reasonable terms. Even if we do acquire such rights, some of the technologies we invest in may be commercially unproven and may not be adopted or accepted by the industry. Moreover, our research and development efforts, and acquisitions and strategic relationships, may be futile if we do not accurately predict the future needs of the semiconductor, consumer and communication electronics, and consumer imaging industries. Our failure to acquire new technologies that are commercially viable in the semiconductor, consumer and communication electronics, and consumer imaging industries could significantly harm our business, financial position, results of operations and cash flows.

The way we integrate internally developed and acquired technologies into our products and licensing programs may not be accepted by customers.

We have devoted, and expect to continue to devote, considerable time and resources to developing, acquiring and integrating new and existing technologies into our products and licensing programs. However, if customers do not accept the way we have integrated our technologies, they may adopt competing solutions. In addition, as we introduce new products or licensing programs, we cannot predict with certainty if and when our customers will transition to those new products or licensing programs. If customers fail to accept new or upgraded products or licensing programs incorporating our technologies, our financial position, results of operations and cash flows could be adversely impacted.

If we fail to protect and enforce our intellectual property rights and our confidential information, our business will suffer.

We rely primarily on a combination of license, development and nondisclosure agreements and other contractual provisions and patent, trademark, trade secret and copyright laws to protect our technology and intellectual property. If we fail to protect our technology and intellectual property, our licensees and others may seek to use our technology and intellectual property without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in large part on our ability to obtain intellectual property rights in a timely manner, our ability to convince third parties of the applicability of our intellectual property rights to their products, and our ability to enforce our intellectual property rights against them.

In certain instances, we attempt to obtain patent protection for portions of our technology, and our license agreements typically include both issued patents and pending patent applications. If we fail to obtain patents in a timely manner or if the patents issued to us do not cover all of the inventions disclosed in our patent applications, others could use portions of our technology and intellectual property without the payment of license fees and royalties. For example, our business may suffer if we are unable to obtain patent protection in a timely manner from the PTO due to processing delays resulting from examiner turnover and a continuing backlog of patent applications.

We also rely on trade secret laws rather than patent laws to protect other portions of our proprietary technology. However, trade secrets can be difficult to protect. The misappropriation of our trade secrets or other proprietary information could seriously harm our business. We protect our proprietary technology and processes, in part, through confidentiality agreements with our employees, consultants, suppliers and customers. We cannot be certain that these contracts have not been and will not be breached, that we will be able to timely detect unauthorized use or transfer of our technology and intellectual property, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. If we fail to use these mechanisms to protect our technology and intellectual property, or if a court fails to enforce our intellectual property rights, our business will suffer. We cannot be certain that these protection mechanisms can be successfully asserted in the future or will not be invalidated or challenged.

Further, the laws and enforcement regimes of certain countries do not protect our technology and intellectual property to the same extent as do the laws and enforcement regimes of the U.S. In certain jurisdictions we may be unable to protect our technology and intellectual property adequately against unauthorized use, which could adversely affect our business.

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Our business may suffer if third parties assert that we violate their intellectual property rights.

Third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we believe that such claims are without merit, they can be time-consuming and costly to defend against and will divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our products or services in the U.S. and abroad. Claims of intellectual property infringement also might require us to enter into costly settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a third party to indemnify us against such costs, the indemnifying party may be unable to perform its contractual obligations under the agreement. If we cannot or do not license the infringed intellectual property at all or on reasonable terms, or substitute similar technology from another source, our business, financial position, results of operations and cash flows could suffer.

Failure by the semiconductor industry to adopt our packaging technology for the next generation high performance DRAM chips would significantly harm our business.

To date, our packaging technology has been used by several companies for high performance DRAM chips. For example, packaging using our technology is used for DDR2 and DDR3 DRAM and we currently have licensees, including SK hynix Inc. and Samsung Electronics, Co., Ltd., who are paying royalties for DRAM chips in advanced packages.

DRAM manufacturers are also currently developing next generation high performance DRAM chips, including next generation of DDR referred to as DDR4, to meet increasing speed and performance requirements of electronic products. We believe that these next-generation, high performance DRAM chips will require advanced packaging technologies such as CSP.

We anticipate that royalties from shipments of these next-generation, high performance DRAM chips packaged using our technology may account for a significant percentage of our future revenues. If semiconductor manufacturers do not continue to use packages employing our technology for the next generation of high performance DRAM chips and find a viable alternative packaging technology for use with next generation high performance DRAM chips, or if we do not receive royalties from next generation, high performance DRAM chips that use our technology, our future revenues could be adversely affected.

Our technology may be too expensive for certain next generation high performance DRAM manufacturers, which could significantly reduce the adoption rate of our packaging technology in next generation high performance DRAM chips. Even if our package technology is selected for at least some of these next generation high performance DRAM chips, there could be delays in the introduction of products utilizing these chips that could materially affect the amount and timing of any royalty payments that we receive. Other factors that could affect adoption of our technology for next generation high performance DRAM products include delays or shortages of materials and equipment and the availability of testing services.

Our licensing cycle is lengthy and costly, and our marketing, legal and sales efforts may be unsuccessful.

We generally incur significant marketing, legal and sales expenses prior to entering into our license agreements, generating a license fee and establishing a royalty stream from each licensee. The length of time it takes to establish a new licensing relationship can take 18 months or longer for an Intellectual Property license and 24 months or longer for some DigitalOptics licenses. As such, we may incur significant losses in any particular period before any associated revenue stream begins.

Tessera Intellectual Property Corp. incurs significant reverse engineering expenditures on products of potential licensees in order to prepare sales and marketing collateral. We employ intensive marketing and sales efforts to educate licensees, potential licensees and original equipment manufacturers about the benefits of our technologies. In addition, even if these companies adopt our technologies, they must devote significant resources to integrate fully our technologies into their operations. If our marketing and sales efforts are unsuccessful, then we will not be able to achieve widespread acceptance of our technology. In addition, ongoing litigation could impact our ability to gain new licensees which could have an adverse effect on our financial condition, results of operations and cash flows.

If our licensees delay or are unable to make payments to us due to financial difficulties, or shift their licensed products to other companies to lower their royalties to us, our operating results and cash flows could be adversely affected.

A number of companies in the semiconductor and consumer electronics industries are facing severe financial difficulties. As a result, there have been recent bankruptcies and restructuring of companies in these industries. Our licensees may face similar financial difficulties which may result in their inability to make payments to us in a timely manner or if at all. In addition, our licensees may merge with or may shift the manufacture of licensed products to companies that are not currently licensees to us. This could make the collection process complex and difficult which could adversely impact our business, financial condition, results of operations and cash flows.

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We do not have extensive experience in manufacturing and marketing products, and as a result, may be unable to successfully execute on our business plan for the DigitalOptics segment.

We are investing in lens design and manufacturing capability in our factory in Taiwan. While we have hired personnel with manufacturing and product marketing experience, we do not, as a company, have extensive experience in these areas. We have a development group in Arcadia, California, that must successfully transfer new product programs to mass production, but we do not have any proven experience in this transfer process. Therefore, our relative lack of experience may make it difficult for us to manufacture DigitalOptics products in commercial quantities while meeting the quality, price, engineering, design, and production standards required to profitably market those products. Even if we are successful in integrating and developing our manufacturing capabilities and processes, we do not know whether we will do so in time to satisfy the requirements of customers. Failure to meet the manufacturing requirements of customers, including Tier One OEMs, and the failure to successfully market our products to such customers, would adversely affect our business and results of operations.

Our manufacturing operations could expose us to liabilities and claims that we have not previously experienced, and such operations, as well as our entire DigitalOptics business, could be subject to litigation risks arising from our Intellectual Property business.

Our commencement of manufacturing operations resulting from the completion of our Taiwan factory could significantly increase the risk that our DigitalOptics business becomes subject to claims of infringement of third-party intellectual property rights. We do not have prior experience in such manufacturing for markets in which third parties may hold a substantial body of patents and other intellectual property rights. Moreover, the risks of third-party infringement claims could be heightened by our need to engage in enforcement activities in our Intellectual Property business, as existing or potential customers of our Intellectual Property business may seek to assert infringement claims against our DigitalOptics business in response to our enforcement activities in our Intellectual Property business. Competitors of our DigitalOptics business would not be subject to such heightened risk of third-party claims, and such claims could adversely affect our DigitalOptics business as well as impair our enforcement ability and results in our Intellectual Property business. Although a separation of our DigitalOptics business might partially abate our heightened vulnerability in this regard, such a separation remains speculative, and there can be no assurance that we ultimately will determine to separate or to be successful in separating such business.

As a larger portion of our revenues is generated from product sales, we may rely on outsourced high volume manufacturing, which is inherently risky.

As we integrate internally developed technologies into products, we may rely on outsourced high volume manufacturing by utilizing third party wafer foundry, camera lens, packaging, camera module assembly and test capabilities. Doing so could present risks to our operations, including:

• reduced control over delivery schedules, yields, capacity and quality assurance;

• limited number of vendors capable of manufacturing our high technology products;

• limited availability of vendor capacity for our products which may delay time to market;

• failure of vendors to meet our technical requirements;

• difficulty in determining target inventory levels based on forecasted demand, which may not be reliable;

• infringement or misappropriation of other third parties’ or our intellectual property;

• limited warranties on products and services supplied to us; and

• overhead costs of developing and maintaining a global supply chain.

If any vendor in the supply chain materially fails to perform, or if we are required to find an alternate vendor and are not able to do so on a timely basis, or if these vendors materially increase their prices, our business strategy could be harmed and our results of operations could be adversely affected.

We could experience losses due to product liability claims which could result in substantial costs to us.

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We sell products and provide services that may subject us to product liability claims in the future. Although we carry liability insurance in amounts that we believe are appropriate, product liability claims can be costly and any future product liability claim made against us may exceed the coverage limits of our insurance policies, be excluded from coverage under the terms of our policies or cause us to record a self-insured loss. A product liability claim in excess of our insurance policies could have a material adverse effect on our business, financial condition and results of operations. Even if a product liability loss is covered by our insurance policies, such policies contain substantial retentions and deductibles that we would be required to pay. Our existing insurance may not be renewed at a cost and level of coverage comparable to that presently in effect, or at all. The payment of retentions or deductibles for a significant amount of claims could have a material adverse effect on our business, financial position, results of operations and cash flows.

Our DigitalOptics solutions currently rely on the use of certain materials and proprietary equipment from a single supplier or a limited number of suppliers. The lack of availability of these materials or proprietary equipment could delay the execution of our business strategy and adversely affect our revenues.

We currently rely on the use of certain materials available from a single supplier or a limited number of suppliers for the manufacturing of our small form factor micro-optics. In addition, we utilize proprietary assembly equipment for certain critical steps of the lens barrel assembly process. If any or some of these materials or proprietary equipment become unavailable, or, if any of these suppliers cease operations and we cannot find an alternative source, our development efforts could be delayed and our revenues from our DigitalOptics business could be adversely affected.

Our financial and operating results may vary, which may cause the price of our common stock to decline.

Our quarterly operating results have fluctuated in the past and are likely to do so in the future. Because our operating results are difficult to predict, you should not rely on quarterly or annual comparisons of our results of operations as an indication of our future performance. Factors that could cause our operating results to fluctuate during any period or that could adversely affect our ability to achieve our strategic objectives include those listed in this “Risk Factors “section of this report and the following:

• the timing of and compliance with license or service agreements and the terms and conditions for payment to us of license or service fees under these agreements;

• fluctuations in our royalties caused by the pricing terms of certain of our license agreements;

• changes in our royalties caused by changes in demand for products incorporating semiconductors that use our licensed technology;

• decrease in our revenues caused by price erosion on high performance camera modules incorporating our DigitalOptics technologies;

• the amount of our product and service revenues;

• the timing of obtaining product orders and executing our manufacturing plan for our MEMS solutions;

• changes in the level of our operating expenses;

• delays in our introduction of new technologies or market acceptance of these new technologies through new license agreements;

• our ability to protect or enforce our intellectual property rights or the terms of our agreements;

• legal proceedings affecting our patents, patent applications or license agreements;

• the timing of the introduction by others of competing technologies;

• changes in demand for semiconductor chips in the specific end markets in which we concentrate;

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• changes in demand for semiconductor capital equipment, digital still cameras and other camera-enabled devices including cell phones, security systems and personal computers;

• the timing of the conclusion of license agreements;

• the time it takes to establish new licensing arrangements could be lengthy;

• the timing of meeting the requirements for revenue recognition under accounting principles;

• changes in accounting principles; and

• cyclical fluctuations in semiconductor markets generally.

Due to fluctuations in our operating results, reports from market and security analysts, litigation-related developments, and other factors, the price at which our common stock will trade is likely to continue to be highly volatile. In future periods, if our revenues or operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has often been brought against companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business.

Our stockholders may not receive the level of dividends provided for in our dividend policy or any dividend at all, and any decrease in or suspension of the dividend could cause our stock price to decline.

In April 2013, we announced plans for a revised dividend policy.  The revised dividend policy maintains the current quarterly dividend.  We also announced a plan to provide for special dividends once a year equal to 20-30% of “Episodic Gain,” which is net gain resulting from “Episodic Revenue”. We define Episodic Revenue as revenue other than revenue payable over at least one year pursuant to a contract, and may include revenue such as non-recurring engineering fees, initial license fees, back payments resulting from audits, damages awards from courts or tribunals, and lump sum settlement payments. Another 20-30% of Episodic Gain would be used to provide a “sinking fund” to provide for the growth of the quarterly dividends. We anticipate that all quarterly and special dividends would be paid out of cash, cash equivalents and short-term investments. The amount of special dividends under the dividend policy will vary based on the Episodic Gain we achieve. Additionally, the dividend policy and the payment of future cash dividends under the policy are subject to the final determination each quarter by our Board of Directors that the policy remains in our best interests, which determination will be based on a number of factors, including our earnings, financial condition, capital resources and capital requirements, alternative uses of capital, economic condition and other factors considered relevant by the Board of Directors. Given these considerations, our Board of Directors may increase or decrease the amount of the dividend at any time and may also decide to suspend or discontinue the payment of cash dividends in the future. Any decrease in the amount of the dividend, or suspension or discontinuance of payment of a dividend, could cause our stock price to decline.

Our stock repurchase program could increase the volatility of the price of our common stock, and the program may be suspended or terminated at any time, which may cause the trading price of our common stock to decline.

In August 2007, we authorized a plan to repurchase up to a maximum total of $100.0 million of the Company's outstanding shares of common stock dependent on market conditions, share price and other factors. As of March 31, 2013, the total amount available for repurchase was $89.5 million. Additionally, in April 2013, we announced a plan to repurchase outstanding shares of our common stock, on an opportunistic basis, in an amount equal to 20-30% of Episodic Gain. The amount of repurchases under our stock repurchase program will vary based on the amount of Episodic Gain we achieve. Additionally, the timing of repurchases is at our discretion and the program may be suspended or discontinued at any time and any suspension or discontinuation could cause the market price of our stock to decline. The timing of repurchases pursuant to our stock repurchase program could affect our stock price and increase its volatility. Furthermore, there can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we effected repurchases.

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The investment of our cash, cash equivalents and investments in marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments.

At March 31, 2013, we held approximately $73.7 million in cash and cash equivalents and $329.0 million in short-term investments. These investments include various financial securities such as municipal bonds and notes, corporate bonds and notes, commercial paper, treasury and agency notes and bills, and money market funds. Although the Company invests in high quality securities, the ongoing financial crises have at times adversely impacted the general credit, liquidity, market and interest rates for these and other types of debt securities. The European fiscal crises and the U.S. "fiscal cliff" and the U.S. government sequester have sometimes impacted market conditions for debt securities. Additionally, changes in monetary policy by the Federal Open Market Committee and recent concerns about the rising U.S. government debt level may cause a decrease in the purchasing power of the U.S. dollar and adversely affect our investment portfolio. The financial market and monetary risks associated with our investment portfolio may have a material adverse effect on our financial condition, results of operations and cash flows.

We operate in a highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry has historically been cyclical and is characterized by wide fluctuations in product supply and demand. From time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, declining economic conditions, maturing product and technology cycles, and excess inventories. This cyclicality could cause our operating results to decline dramatically from one period to the next. Our business depends heavily upon the volume of production by our licensees, which, in turn, depends upon the current and anticipated market demand for semiconductors and products that use semiconductors. Similarly, our product revenues rely at least in part upon the demand of the semiconductor equipment market. Semiconductor manufacturers and package assembly companies generally sharply curtail their spending during industry downturns, such as in the recent global economic downturn, and historically have lowered their spending more than the decline in their revenues. As a result, our businesses results have been, and will be in the future, significantly impacted by the cyclicality of the semiconductor industry. If we are unable to control our expenses adequately in response to lower revenues from our licensees and service customers in such downturns, our results of operations and cash flows will be materially and adversely impacted.

Changes in financial accounting or existing taxation standards, rules, practices or interpretation may cause adverse unexpected revenue and expense fluctuations which may impact our reported results of operations.

We prepare our consolidated financial statements in accordance with U.S. GAAP. These principles are subject to interpretations by the SEC and various accounting bodies. In addition, we are subject to various taxation rules in many jurisdictions. The existing taxation rules are generally complex, frequently changing and often ambiguous. Changes to existing taxation rules, changes to the financial accounting standards such as the proposed convergence to international financial reporting standards, or any changes to the interpretations of these standards or rules may adversely affect our reported financial results or the way we conduct our business. Recent accounting pronouncements and their estimated potential impact on our business are addressed in Note 3 – “Recent Accounting Pronouncements ” in the Notes to Consolidated Financial Statements.

The international nature of our business exposes us to financial and regulatory risks that may have a negative impact on our consolidated financial position, results of operations and cash flows, and we may have difficulty protecting our intellectual property in some foreign countries.

We derive a significant portion of our revenues from licensees headquartered outside of the U.S. We have also expanded our operations outside of the U.S., including manufacturing operations in Taiwan, and our research and development facilities in Ireland, Japan, Romania and Taiwan to design, develop, test or market certain technologies. International operations are subject to a number of risks, including but not limited to the following:

• fluctuations in exchange rates between the U.S. dollar and foreign currencies as our revenues are denominated principally in U.S. dollars and a portion of our costs are based in local currencies where we operate;

• changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment;

• regulatory requirements and prohibitions that differ between jurisdictions;

• laws and business practices favoring local companies;

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• withholding tax obligations on license revenues that we may not be able to offset fully against our U.S. tax obligations, including the further risk that foreign tax authorities may re-characterize license fees or increase tax rates, which could result in increased tax withholdings and penalties;

• security concerns, including crime, political instability, terrorist activity, armed conflict and civil or military unrest;

• differing employment practices, labor issues and business and cultural factors;

• less effective protection of intellectual property than is afforded to us in the U.S. or other developed countries; and

• limited infrastructure and disruptions, such as large-scale outages or interruptions of service from utilities or telecommunications providers.

Our intellectual property is also used in a large number of foreign countries. There are many countries in which we currently have no issued patents. In addition, effective intellectual property enforcement may be unavailable or limited in some foreign countries. It may be difficult for us to protect our intellectual property from misuse or infringement by other companies in these countries. We expect this to become a greater problem for us as our licensees increase their manufacturing and sales in countries which provide less protection for intellectual property. Our inability to enforce our intellectual property rights in some countries may harm our business, financial position, results of operations and cash flows.

Our business and operating results may be harmed if we are unable to manage growth in our business, if we undertake any restructuring activities or if we dispose of a business division or dispose of or discontinue any product lines.

We have in the past expanded our operations, domestically and internationally, and may continue to do so through both internal growth and acquisitions. For example, in June 2012, we acquired manufacturing capabilities in Zhuhai, China, which we subsequently determined to close in March 2013. In addition, we also expanded our manufacturing capabilities in Taiwan, including transferring some of the equipment from the Zhuhai Facility to Taiwan. This expansion has in the past and may continue in the future to strain our systems and management, operational and financial controls and resources. In addition, we are likely to incur higher operating costs in Taiwan. To manage our growth effectively, we must continue to improve and expand our management, systems and financial controls. We also need to continue to expand, train and manage our employee base. We cannot ensure that we will be able to timely and effectively meet demand and maintain the quality standards required by our existing and potential customers and licensees. Furthermore, production orders from customers and licensees of the acquired businesses may decline from historical levels. If we are unable to effectively manage our growth or we are unsuccessful in recruiting and retaining personnel, our business and operating results will be harmed.

From time to time, we may undertake to restructure our business, including the disposition of a business division, or the disposition or discontinuance of a product line. For example, in 2011, we announced that we are exploring a possible separation of our DigitalOptics business from the parent corporation, in November 2012, we announced the planned closure of our facility located in Israel and in March 2013, we announced the planned closure of our Zhuhai Facility. We also announced in November 2012 the potential sale of our DigitalOptics manufacturing facility based in Charlotte, North Carolina. There are several factors that could cause a restructuring, a disposition or a discontinuance to have an adverse effect on our business, financial position, results of operations and cash flows. These include potential disruption of our operations and our information technology systems, the timing of development of our technology, the deliveries of products or services to our customers, changes in our workforce and other aspects of our business. In addition, such actions may increase the risk of claims or threats of lawsuits by our customers or former employees. In the case of a disposition of a product line, there may be a risk of not identifying a purchaser, or, if identified, the purchase price may be less than the net asset book value for the product line. Employee morale and productivity could also suffer and we may lose employees whom we want to keep. Any restructuring, disposition or discontinuance would require substantial management time and attention and may divert management from other important work. There are no assurances that the restructuring, disposal or discontinuance will reduce our operating expenses. We may also incur other significant liabilities and costs including employee severance costs, relocation expenses, and impairment of lease obligations and long-lived assets. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.

We have recently implemented cost saving measures and may implement additional cost saving measures in the future. These measures may interfere with the operation of our business and if we are unable to realize the anticipated benefits of these measures, our operating results and financial condition could be adversely affected.

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In March 2013, we announced a restructuring of our DigitalOptics segment and a reduction of corporate overhead expenses to refocus our Digital Optics business strategy to achieve the full potential of our differentiated imaging technology while reducing costs. These measures included termination in our workforce and other cost savings measures to reduce our cash expenditures. In April 2013, we also announced our plan to limit additional net spending in fiscal year 2013 on the DigitalOptics business and that we would seek third-party investments, joint ventures or a possible sale of our DigitalOptics business to reduce our financial commitment to the DigitalOptics business while optimizing stockholder return. If we are unable to realize the expected operational efficiencies and financial benefits from these cost-savings measures, our business, operating results and financial condition would be adversely affected. We continue to review our cost structure and may implement further cost saving initiatives in the future. These cost reduction efforts may interfere with our ability to achieve our business objectives, may be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business, all of which may have an adverse impact on our business.

We may be unable to identify or complete a favorable transaction for our DigitalOptics business.

In April 2013 we announced that we are exploring the possibility of seeking third-party investments, joint ventures or a possible sale of our DigitalOptics business and we previously announced that we are exploring a possible separation of our DigitalOptics business from the parent corporation. We have not set a definitive timetable for completing any such strategic alternatives for the DigitalOptics business, and there can be no assurance that the process will result in the identification or selection of a transaction, that any transaction that is identified or selected will be completed, or that a completed transaction will be favorable to us and our stockholders. There are numerous hurdles to any such a transaction, including the ongoing operating losses of the DigitalOptics business, which make it uncertain whether such business could be operated as a stand-alone company or would attract interest from any potential buyer, partner or investor.

In order to realize our business plan for the DigitalOptics business, we will need to invest a significant amount of capital into our DigitalOptics business or find a strategic partner to help defray such costs.

Our manufacturing and research and development objectives in the DigitalOptics business will require substantial additional capital expenditures and increased working capital. For example, we made significant capital expenditures to build a manufacturing facility on Taiwan which officially opened in January 2013. Additionally, we are making inventory purchases and entering into related purchase commitments. These and other investments in our DigitalOptics business may result in restructuring and asset impairment charges which would adversely affect the financial results of the Company. For example, in the first half of 2013, we anticipate that we will incur restructuring and asset impairment charges totaling approximately $29.0 million related to changes in our DigitalOptics business plan.

In April 2013, we also announced our plan to limit additional net spending in fiscal year 2013 on the DigitalOptics business. We may not be able to achieve our objectives for the DigitalOptics business on a timely basis given the limit of additional net spend for fiscal year 2013, in which case we will either have to increase our net spend, which could have an adverse effect on our results of operations and financial condition, or narrow our objectives for the DigitalOptics business, which could have an adverse effect on the prospects of that business.

Furthermore, there can be no assurance that our existing capital resources and cash from operations will be sufficient to fund the capital expenditures we will need to make in the future to achieve our manufacturing and research and development objectives, or that we will be able to find a suitable partner to defray such costs Even if we are able to obtain a suitable partner, such partnership may reduce our overall potential in the DigitalOptics business. If our existing capital resources or cash from operations are not sufficient and we are unable to obtain necessary capital or partner to execute on our DigitalOptics business plan, it would adversely affect our business, financial condition and results of operations.

Disputes regarding our intellectual property may require us to indemnify certain licensees, the cost of which could adversely affect our business operations and financial condition.

While we generally do not indemnify our licensees, some of our license agreements in our DigitalOptics business provide limited indemnities for certain actions brought by third parties against our licensees, and some require us to provide technical support and information to a licensee that is involved in litigation for using our technology. We expect to agree to provide similar indemnity or support obligations to future licensees. Our indemnity and support obligations could result in substantial expenses. In addition to the time and expense required for us to indemnify or supply such support to our licensees, a licensee’s development, marketing and sales of licensed DigitalOptics products could be severely disrupted or shut down as a result of litigation, which in turn could have a material adverse effect on our business operations, consolidated financial position, results of operations and cash flows.

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If we lose any of our key personnel or are unable to attract, train and retain qualified personnel, including a new President and Chief Executive Officer, we may not be able to execute our business strategy effectively.

Our success depends, in large part, on the continued contributions of our key management, engineering, sales, marketing, legal and finance personnel, many of whom are highly skilled and would be difficult to replace. None of our senior management, key technical personnel or key sales personnel are bound by written employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel or restrictions on their post-employment ability to solicit our employees, contractors or customers if key personnel voluntarily terminate their employment. The loss of any of our senior management or other key personnel, some of whom have only been in their current positions for a relatively short period of time, could harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. Robert A. Young, Ph.D. resigned as our President and Chief Executive Officer effective April 15, 2013, and the Board has undertaken a search for a successor as President and Chief Executive Officer. Our Chairman of the Board, Richard S. Hill, has been appointed to serve as Interim Chief Executive Officer until a successor is identified. Our future success will depend to a significant extent on our ability to identify a successor President and Chief Executive Officer that can effectively drive execution of our business strategy, and on the ability of our management team to work together effectively.

Our success also depends on our ability to attract, train and retain highly skilled managerial, engineering, sales, marketing, legal and finance personnel and on the abilities of new personnel to function effectively, both individually and as a group. Competition for qualified senior employees can be intense. We have also experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support our growth and expansion. Further, we must train our new personnel, especially our technical support personnel, to respond to and support our licensees and customers. If we fail to do this, it could lead to dissatisfaction among our licensees or customers, which could slow our growth or result in a loss of business.

Changes to our enterprise resource planning and other key software applications could cause unexpected problems to occur and disrupt the management of our business.

We are currently contemplating an upgrade to our enterprise resource planning system (“ERP”), and other management information systems which are critical to the operational, accounting and financial functions of our company. Significant management attention and resources would be used and extensive planning would be required to support effective implementation of a new ERP and other such systems. In addition, such implementation may carry certain risks, including the risk of significant design errors, and unexpected difficulties may arise that could materially and adversely affect the accuracy and timely reporting of our operating results and impact our ability to manage our business.

Our business operations could suffer in the event of information technology systems’ failures or security breaches.

Despite system redundancy and the implementation of security measures within our internal and external information technology and networking systems, our information technology systems may be subject to security breaches, damages from computer viruses, natural disasters, terrorism, and telecommunication failures. Any system failure or security breach could cause interruptions in our operations in addition to the possibility of losing proprietary information and trade secrets. To the extent that any disruption or security breach results in inappropriate disclosure of our confidential information, we may incur liability or additional costs to remedy the damages caused by these disruptions or security breaches.

Decreased effectiveness of share-based compensation could adversely affect our ability to attract and retain employees.

We have historically used stock options and other forms of stock-based compensation as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention and provide competitive compensation and benefit packages. Since the adoption of the authoritative guidance on share-based payment, we have recorded significant compensation costs associated with our stock-based compensation programs. Difficulties relating to obtaining stockholder approval of equity compensation plans or changes to the plans could make it harder or more expensive for us to grant stock-based compensation to employees in the future. As a result, we may find it difficult to attract, retain and motivate employees, and any such difficulty could materially adversely affect our business.

Failure to comply with environmental regulations could harm our business.

We use hazardous substances in the manufacturing and testing of prototype products and in the development of our technologies in our research and development laboratories. We are subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances. Our past, present or future failure to comply with environmental regulations could result in the imposition of substantial fines on us, suspension of production, and alteration of our manufacturing processes or cessation of

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operations. Compliance with such regulations could require us to acquire expensive remediation equipment or to incur other substantial expenses. Any failure by us to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject us to significant liabilities, including joint and several liabilities under certain statutes. The imposition of such liabilities could significantly harm our business, financial position, results of operations and cash flows.

Our effective tax rate depends on our ability to secure the tax benefits of our international corporate structure, on the application of the tax laws of various jurisdictions and on how we operate our business.

Our international corporate structure and intercompany arrangements, including the manner in which we market, develop, use and license our intellectual property, fund our operations and structure transactions with our international subsidiaries, may result in the reduction of our worldwide effective tax rate. Such international corporate structure and intercompany arrangements are subject to examination by the tax authorities of the jurisdictions in which we operate, including the United States. The application of the tax laws of these jurisdictions to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. Moreover, such tax laws are subject to change. Tax authorities may disagree with our intercompany transfer pricing arrangements, including our transfer of intangibles, or determine that the manner in which we operate our business does not achieve the intended tax consequences. Additionally, future changes in the tax laws (such as proposed legislation to reform U.S. taxation of international business activities) may have an adverse effect on our international corporate structure and operations. The result of an adverse determination of any of the above items could increase our worldwide effective tax rate and harm our financial position and results of operations.

Our deferred tax assets may ultimately not be recoverable, and we may need to provide for valuation allowances in the future if we conclude that it is more likely than not the deferred tax assets are not recoverable.

Our net deferred tax assets relate predominantly to the United States federal tax jurisdiction. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both negative and positive evidence to assess the recoverability of our net deferred tax assets during the first quarter of 2013, we determined that it was more likely than not we would realize the full value of our federal deferred tax assets. As such, we determined that no valuation allowance is required on our net federal deferred tax assets. We continue to monitor the likelihood that we will be able to recover our deferred tax assets. Adjustments could be required in the future if we conclude that it is more likely than not that deferred tax assets are not recoverable. A provision for a valuation allowance could have the effect of increasing the income tax provision in the statement of operations in the period the valuation allowance is provided.

We have business operations located globally in places that are subject to natural disasters.

Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel. Our locations may be subject to earthquakes, hurricanes and other natural disasters. Should a hurricane, earthquake or other catastrophe, such a fire, flood, tsunami, power loss, communication failure or similar event disable our facilities, we do not have readily available alternative facilities from which we could conduct our business.

We have made and may continue to make or to pursue acquisitions which could divert management’s attention, cause ownership dilution to our stockholders, or be difficult to integrate, which may adversely affect our financial results.

We have made several acquisitions, and it is our current plan to continue to acquire companies, assets, patent portfolios and technologies that we believe are strategic to our future business. Investigating businesses, assets, patent portfolios or technologies and integrating newly acquired businesses, assets, patent portfolios or technologies could put a strain on our resources, could be costly and time consuming, and might not be successful. Such activities divert our management’s attention from other business concerns. In addition, we might lose key employees while integrating new organizations or operations. Acquisitions could also result in customer dissatisfaction, performance problems with an acquired company or technology, potentially dilutive issuances of equity securities or the incurrence of debt, the assumption or incurrence of contingent liabilities, impairment charges related to goodwill and possible impairment charges related to other intangible assets or other unanticipated events or circumstances, any of which could harm our business.

Our plans to integrate and expand upon research and development programs and technologies obtained through acquisitions may result in products or technologies that are not adopted by the market. Similarly, our plans to establish and to expand manufacturing operations for new products in Taiwan and potentially other countries may result in products that do not achieve anticipated customer acceptance or sales. The market may adopt competitive solutions to our products or technologies.

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Consequently, we might not be successful in integrating any acquired businesses, assets, products or technologies, and might not achieve anticipated revenues and cost benefits.

There are numerous risks associated with our acquisitions of businesses, technologies and patents

We have made a number of acquisitions of businesses, technologies and patents in recent years. These acquisitions are subject to a number of risks, including but not limited to the following:

• These acquisitions could fail to produce anticipated benefits, or could have other adverse effects that we currently do not foresee. As a result, these acquisitions could result in a reduction of net income per share as compared to the net income per share we would have achieved if these acquisitions had not occurred.

• The purchase price for each acquisition is determined based on significant judgment on factors such as projected value, quality and availability of the business, technology or patent. In addition, if other companies have similar interests in the same business, technology or patent, our ability to negotiate these acquisitions at favorable terms may be limited and the purchase price may be artificially inflated.

• Following completion of these acquisitions, we may uncover additional liabilities, patent validity, infringement or enforcement issues or unforeseen expenses not discovered during our diligence process. Any such additional liabilities, patent validity, infringement or enforcement issues or expenses could result in significant unanticipated costs not originally estimated, such as impairment charges of acquired assets and goodwill, and may harm our financial results. For example, during 2011 we recorded an impairment of goodwill of $49.7 million, mainly due to a significant decline in our market capitalization for an extended period of time and in the first half of 2013, we anticipate that we will incur restructuring and asset impairment charges totaling approximately $29.0 million related to changes in our DigitalOptics business plan.

• The integration of technologies, patent portfolios and personnel, if any, will be a time consuming and expensive process that may disrupt our operations if it is not completed in a timely and efficient manner. If our integration efforts are not successful, our results of operations could be harmed, employee morale could decline, key employees could leave, and customer relations could be damaged. In addition, we may not achieve anticipated synergies or other benefits from any of these acquisitions.

• We have incurred substantial direct transaction costs as a result of these acquisitions and anticipate incurring substantial additional costs to support the integration of these businesses and technologies. The total cost of the integration may exceed our expectations.

• Sales by the acquired businesses may be subject to different accounting treatment than our existing businesses, especially related to the recognition of revenues. This may lead to potential deferral of revenues due to new multiple-element revenue arrangements.

• There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During that time lag, material costs are likely to be incurred in preparing licensing and/or litigation campaigns that would have a negative effect on our results of operations, cash flows and financial position.

• We may require external financing that is dilutive, presents risks of debt or shares a corporate opportunity with a third party.

• We are required to estimate and record fair values of contingent assets, liabilities, deferred tax assets and liabilities at the time of an acquisition. Even though these estimates are based on management’s best effort, the actual results may differ. Under the current accounting guidance, differences between actual results and management’s estimate could cause our operating results to fluctuate or could adversely affect our results of operations.

If our amortizable intangible assets (such as acquired patents) or equity investments become impaired, we may be required to record a significant charge to earnings.

In addition to internal development, we intend to broaden our intellectual property portfolio through strategic relationships and acquisitions. We believe this will enhance the competitiveness and size of our current businesses and diversify into markets and technologies that complement our current businesses. These acquisitions could be in the form of asset purchases, equity

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investments, or business combinations. As a result, we may have intangible assets which are amortized over their estimated useful lives, equity investments, in-process research and development, and goodwill. Under U.S. GAAP, we are required to periodically review our goodwill, amortizable intangible assets, such as patent portfolio, and equity investments for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill, amortizable intangible assets or equity investments may not be recoverable include a decline in future cash flows, fluctuations in market capitalization, slower growth rates in our industry or slower than anticipated adoption of our products by our customers. In the three months ended March 31, 2013, we recorded an impairment of goodwill of $6.7 million when we revised our business strategy for the DigitalOptics business to concentrate its manufacturing efforts on the lens barrel, rather than the whole camera module. This revised strategy made the Zhuhai Facility unnecessary and the goodwill was tied to the Zhuhai Facility. We also recorded an $8.7 million charge due to the abandonment of existing patents and technology, which caused a revision of the useful life estimate of these patent and technology assets thus fully impairing them. As we continue to review for factors that may affect our business which may not be in our control, we may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our amortizable intangible assets or equity investments is determined, resulting in an adverse impact on our business, financial position or results of operations.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, new SEC regulations and the NASDAQ Stock Market rules, have created uncertainty for companies. These laws, regulations and standards are often subject to varying interpretations. As a result, their application in practice may evolve as new guidance is provided by regulatory and governing bodies, which could result in higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result of our efforts to comply with evolving laws, regulations and standards, we have increased and may continue to increase general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities.

Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of control transaction and depress the market price of our stock.

Various provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, authorize the board to issue “blank check” preferred stock, prohibit stockholder action by written consent, eliminate the right of stockholders to call special meetings, limit the ability of stockholders to remove directors, and establish advance notice procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings. We are also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibit Number	Exhibit Title
3.1	Restated Certificate of Incorporation (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003, and incorporated herein by reference)
3.2	Amended and Restated Bylaws, dated September 14, 2011, as amended August 29, 2012, December 19, 2012, March 2, 2013, March 25, 2013 and April 29, 2013
10.1	Settlement Agreement and General Release, dated January 15, 2013, by and between the Registrant and Richard Chernicoff (filed as Exhibit 10.48 to the Registrant's Annual Report on Form 10-K, filed on March 1, 2013, and incorporated herein by reference)
10.2	Consulting Agreement, dated January 15, 2013, by and between Tessera Global Services, Inc., a wholly owned subsidiary of the Registrant, and Richard Chernicoff (filed as Exhibit 10.49 to the Registrant's Annual Report on Form 10-K, filed on March 1, 2013, and incorporated herein by reference)
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxomony Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

Dated: May 10, 2013

Tessera Technologies, Inc.
By:	/s/    C. Richard Neely, Jr.
	C. Richard Neely, Jr.
	Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Exhibit Title
3.1	Restated Certificate of Incorporation (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003, and incorporated herein by reference)
3.2	Amended and Restated Bylaws, dated September 14, 2011, as amended August 29, 2012, December 19, 2012, March 2, 2013, March 25, 2013 and April 29, 2013
10.1	Settlement Agreement and General Release, dated January 15, 2013, by and between the Registrant and Richard Chernicoff (filed as Exhibit 10.48 to the Registrant's Annual Report on Form 10-K, filed on March 1, 2013, and incorporated herein by reference)
10.2	Consulting Agreement, dated January 15, 2013, by and between Tessera Global Services, Inc., a wholly owned subsidiary of the Registrant, and Richard Chernicoff (filed as Exhibit 10.49 to the Registrant's Annual Report on Form 10-K, filed on March 1, 2013, and incorporated herein by reference)
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxomony Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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