1、TESSERA TECHNOLOGIES INCFORM 10-K(Annual Report)Filed 03/01/13 for the Period Ending 12/31/12 Address3025 ORCHARD PARKWAYSAN JOSE,CA 95134Telephone4083216000CIK0001261694SymbolTSRASIC Code3674-Semiconductors and Related DevicesIndustrySemiconductorsSectorTechnologyFiscal Year12/31http:/www.edgar- Co
2、pyright 2013,EDGAR Online,Inc.All Rights Reserved.Distribution and use of this document restricted under EDGAR Online,Inc.Terms of Use.Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K (Mark One)For the fiscal year ended December 31,2012 OR For the tra
3、nsition period from to Commission File Number:000-50460 Tessera Technologies,Inc.(Exact name of registrant as specified in its charter)Securities registered pursuant to Section 12(b)of the Act:Securities registered pursuant to Section 12(g)of the Act:None Indicate by check mark if the registrant is
4、a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No?Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Securities Exchange Act.Yes?No Indicate by check mark whether the registrant(1)has filed all reports
5、 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 No?Indicate by check mark wh
6、ether the registrant has submitted electronically and posted on its corporate Web site,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 period that the registrant was required to submit an
7、d post such files).Yes No?Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrants knowledge,in definitive proxy or information statements incorporated by reference in Part III of thi
8、s Form 10-K or any amendment to this Form 10-K.?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 the definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”in R
9、ule 12b-2 of the Exchange Act.(Check one):Large accelerated filer Accelerated filer?Non-accelerated filer?(Do not check if a smaller reporting company)Smaller reporting company?Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Securities Exchange Act).Y
10、es?No The aggregate market value of the registrants common stock held by non-affiliates of the registrant as of June 30,2012 was$772,550,804(based on the closing sale price of the registrants common stock as reported on The NASDAQ Global Select Market).The number of shares outstanding of the registr
11、ants common stock as of January 31,2013 was 52,324,821.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrants Proxy Statement for the registrants 2013 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the registrants 2012 fiscal year and are
12、 incorporated by reference in Part III.ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934?TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 16-1620029(State or other jurisdiction of incorporation or organization)(I.R.S.E
13、mployer Identification No.)3025 Orchard Parkway San Jose,California 95134 (408)321-6000(Address of principal executive offices,including zip code)(Registrants telephone number,including area code)Title of each class Name of each exchange on which registered Common stock,par value$0.001 per share The
14、 NASDAQ Global Select Market Table of Contents ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,2012 TABLE OF CONTENTS Cautionary Statement Regarding Forward-Looking Statements This Annual Report contains forward-looking statements,which are subject to the safe harbor provisions created by
15、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
16、means of identifying forward-looking statements in this Annual Report on Form 10-K(the“Annual 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 ab
17、out historical facts are statements that could be deemed forward-looking statements,including,but not limited to,statements that relate i Page PART I Item 1.Business 1 Item 1A.Risk Factors 7 Item 1B.Unresolved Staff Comments 28 Item 2.Properties 28 Item 3.Legal Proceedings 28 Item 4.Mine Safety Disc
18、losures 45 PART II Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 46 Item 6.Selected Financial Data 48 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A.Quantitative and Qualitativ
19、e Disclosures About Market Risk 68 Item 8.Financial Statements and Supplementary Data 69 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 72 Item 9A.Controls and Procedures 72 Item 9B.Other Information 74 PART III Item 10.Directors,Executive Officers and Co
20、rporate Governance 75 Item 11.Executive Compensation 75 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 75 Item 13.Certain Relationships and Related Transactions,and Director Independence 75 Item 14.Principal Accountant Fees and Services 75 PART
21、 IV Item 15.Exhibits and Financial Statement Schedules 76 Signatures Table of Contents 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
22、 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 aim to begin manufactur
23、ing our mems|cam products at our manufacturing facility in Zhuhai,China,tax expenses,cash flows,our ability to liquidate and recover the carrying value of our investments,our managements plans and objectives for our current and future operations,managements plans for repurchasing our common stock pu
24、rsuant to the authorization of our Board of Directors,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 Annual
25、 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 discusse
26、d below under the heading“Risk Factors”within Item 1A of this Annual Report and other documents we file from time to time with the Securities and Exchange Commission(the“SEC”),such as our quarterly reports on Form 10-Q and our current reports on Form 8-K.Such risks,uncertainties and changes in condi
27、tion,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 Annual Report and are based
28、 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 Annual Report.Readers are urged to carefully review and consider the various disclosu
29、res made in this Annual Report,which attempt to advise interested parties of the risks and factors that may affect our business,financial condition,results of operations and prospects.ii Table of Contents PART I Corporate Information Tessera Technologies,Inc.(together with its subsidiaries,the“Compa
30、ny”)was founded and incorporated in the state of Delaware in 1990.Our principal executive offices are located at 3025 Orchard Parkway,San Jose,California 95134.Our telephone number is(408)321-6000.Tessera,the Tessera logo,BGA,OptiML,DOC,the DOC logo,the mems|cam logo,FaceTools,Invensas,the Invensas
31、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 Annual Report,the“Company,”
32、“we,”“us”and“our”refer to Tessera Technologies,Inc.and its subsidiaries on a consolidated basis.Overview Tessera Technologies,Inc.is a holding company with operating subsidiaries in two segments:Intellectual Property and DigitalOptics.Our Intellectual Property segment managed by Tessera Intellectual
33、 Property Corp.,generates revenue from manufacturers and other implementers that use our technology.The segment includes our subsidiaries,Tessera,Inc.and Invensas Corporation(“Invensas”).Tessera,Inc.pioneered chip-scale packaging solutions,which it licenses to companies in the semiconductor industry
34、.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”)operate our DigitalOptics business.DOC desig
35、ns and manufactures imaging systems for smartphones,generating revenue through product sales and software license fees and royalties.DOCs expertise in optics,camera modules,Micro Electro Mechanical Systems(“MEMS”),and image processing enable it to deliver products that expand the boundaries of smart
36、phone 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”).On November 14,2012 we announced our plans to focus on our core MEMS autofocus product oppor
37、tunity 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 wh
38、ich our management viewed and evaluated our operations for the period reported.As our business grows and evolves,our management may change their views of our business operations.Segment information in Part II,Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
39、 and in Note 16“Segment and Geographic Information”in the Notes to Consolidated Financial Statements is incorporated herein by reference and is presented per the authoritative guidance for segment reporting.At the end of 2011,we renamed our segments and also recast our results to reflect the inclusi
40、on of our silent air cooling program in our DigitalOptics segment.Prior to that time,that program was included in our Intellectual Property segment.Intellectual Property Segment Research and development by our Tessera,Inc.subsidiary led to significant innovations in semiconductor packaging technolog
41、y.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 1 Item 1.
42、Business Table of Contents 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 si
43、gnificant 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 one of the technologies Inven
44、sas launched in 2011xFD“DIMM-in-a-Package”memory technology.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 ci
45、rcuit 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.Customers:Our semiconductor packaging technologies have been licensed to more than 70 c
46、ompanies.These customers include SK hynix,Intel,Motorola Mobility,Samsung and Texas Instruments,among others.More than 60 billion semiconductor chips have shipped with Tessera IP.Research&Development:As of December 31,2012,Tessera,Inc.and Invensas employed 44 engineers and technologists devoted to s
47、emiconductor packaging and other semiconductor technologies.Research and development and other related costs for the Intellectual Property segment were approximately$32.8 million,$28.8 million and$24.0 million for the years ended December 31,2012,2011 and 2010,respectively.Intellectual Property Port
48、folio:As of December 31,2012,our subsidiaries comprising the Intellectual Property segment owned approximately 1,135 United States patents and patent applications,as well as approximately 713 foreign patents and patent applications.The last to expire of those issued patents expires in 2031.Tessera I
49、ntellectual Property Corp.evaluates portfolios in fields beyond semiconductor packaging technologies.Our evaluation criteria for patent acquisitions include,for example:the size of the portfolio,the profitability of the infringing products,our view of the prospects of the market for infringing produ
50、cts,legal criteria and our assessment of the likelihood of obtaining negotiated licenses.See Part I,Item 1A Risk Factors.Strategy:We expect our Intellectual Property revenues to primarily come from:Our longer-term semiconductor packaging technology strategy may focus on developing partnerships with
51、companies that operate leading edge production facilities.We believe convergence of semiconductor design and manufacturing with assembly and test services is inevitable in the industry.Research and development partnerships will enable our existing team to bring to market three-dimensional packaging
52、solutions and other advancements in semiconductor packaging.2 Continuing business with our existing licensees;New licensees of our semiconductor technology;and Partnering with patent holders or purchasing patent portfolios in fields beyond semiconductor packaging and then leveraging our core compete
53、ncies in reverse engineering,licensing and litigation to realize the value of those portfolios.Table of Contents Competition:We compete with other firms in acquiring patent portfolios or partnering with owners of patent portfolios.The key competitive factors include financial resources and willingne
54、ss to pay,experience in patent licensing,reputation as a licensor,litigation history,and licensing strategy for the subject portfolio.We also face a form of competition known as royalty stacking.Royalty stacking refers to situations in which a single product potentially infringes on many patents,and
55、 thus may bear multiple royalty burdens.Our customers willingness and ability to pay reasonable royalties is,in part,affected by the number of patents infringed by a particular customer product,the concentration of the holders of those patents,the customers cost of licensing those patents,and the pr
56、ofitability of the infringing product.We also compete with internal design groups at semiconductor manufacturers,assemblers,and electronic component and system manufacturers,who may create their own packaging solutions that compete with our technologies that we license.Reasonable royalties for our p
57、atented inventions are best secured through negotiated license agreements thereby avoiding the uncertainties of litigation.See Part I,Item 1A Risk Factors.Obtaining reasonable royalties for use of our patents is generally dependent on:Although our Tessera Intellectual Property Corp.licensing team is
58、 engaged with many semiconductor manufacturers and assembly and test companies and Tessera,Inc.has licensed many semiconductor companies,some of the companies that use our patented technology have not voluntarily entered into license agreements.As a result,we have developed significant abilities to
59、plan,execute and sustain litigation campaigns.We believe that holding a significant cash and cash equivalents position is essential to maintaining the credibility of our litigation capabilities.Some of Tessera,Inc.s extensively litigated patents expired in 2010,but Tessera,Inc.continues to maintain
60、legal actions seeking damages for past infringement of these expired patents,as well as legal actions related to unexpired patents.See Part 1,Item 3 Legal Proceedings.DigitalOptics Segment DigitalOptics offers imaging systems for smartphones that include DOCs MEMS autofocus camera modules,lens barre
61、ls 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:DOCs mems|cam family of products includes autofocus camera modules and lens barrels for smartph
62、ones.By leveraging DOCs proprietary MEMS designs and processes,DOCs 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:DOCs software s
63、olutions for mobile imaging include its FaceTools,face beautification,red-eye removal,HDR,panorama,and image stabilization products.3 Reverse engineering products and demonstrating infringement of the claimed inventions;Defeating arguments that our patents are invalid or unenforceable;and Providing
64、technical and market data supporting the royalties we are seeking.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 perfor
65、mance of these applications for both video and still images is enhanced.Table of Contents 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 DOCs state-of-the-art ISO-registered facil
66、ity 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 DOCs core product opportunity in the MEMS autofocus area.Fixed Focus Camera Modules:DOC produces fixed f
67、ocus camera modules at its camera module assembly facility located in Zhuhai,China.Fixed focus camera modules have lens systems where the distances between the lenses are constant.In contrast,our mems|cam products use MEMS technology to mechanically adjust the distances,enabling autofocus.In 2012,we
68、 began to transition production capacity of our Zhuhai facility towards our new mems|cam products.Customers:Certain of our DOC technologies are currently licensed to companies such as Guangdong Oppo Mobile Telecommunications Corp,LTD,Nikon Corporation,Samsung Electronics Co.,Ltd.,and Toshiba Corpora
69、tion,among others,in markets such as digital still cameras and smartphones.Our micro-optic lenses are sold into many markets,including semiconductor lithography,high-end communication routers,military and defense,and barcode scanners.We are primarily targeting OEMs of smartphones for our mems|cam fa
70、mily of products.Sales and Marketing:Our sales activities focus primarily on developing direct relationships at the technical,marketing and executive management levels with companies in the camera module and smartphone industry to license our technologies and sell our products.Product marketing focu
71、ses on identifying the needs and product requirements of our customers.Product marketing also manages the development of all of our technologies throughout the development cycle and creates the required marketing materials to assist with the adoption of the technologies.Research&Development:Our rese
72、arch and development groups work closely with our sales and marketing groups,as well as our customers and partners,to bring new products incorporating our technologies to market in a timely,high quality and cost-efficient manner.As of December 31,2012,DOC employed 327 engineers and technologists dev
73、oted to consumer optics.Research and development and other related costs for the DigitalOptics segment were approximately$67.9 million,$47.2 million and$50.1 million for the years ended December 31,2012,2011 and 2010,respectively.4 Face Beautification,which allows users to automatically enhance port
74、raits(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 eas
75、ily 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.Table of Contents Intellectual Property Portfolio:As of December 31,2012,our subsidiaries comprising the DigitalOp
76、tics segment owned approximately 798 United States patents and patent applications,as well as approximately 680 foreign patents and patent applications.The last to expire of those issued patents expires in 2031.Strategy:Our overall goal is to disrupt todays conventional camera module market by deliv
77、ering our mems|cam products combined with innovative image processing features.We aim to do this primarily by manufacturing and delivering MEMS autofocus products,which we anticipate will take market share from the current incumbent VCM technology due to the speed,power,and precision advantages the
78、MEMS autofocus products offer relative to existing VCM camera modules.We primarily plan to target the$4.5 billion smartphone camera module market.We also plan to license our image processing software to additional major OEMs in the smartphone market and,in the long-term,to integrate this software in
79、to our mems|cam products.Competition:Our MEMS-based autofocus technology competes 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 a
80、nd 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 emerg
81、ing technologies such as ASMLs 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 pr
82、ocessing 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.We also expect to s
83、ee other competing technologies emerge.Competitors in the lens actuator field include VCM manufacturers such as Mitsumi Electric Co.,Ltd,Shikoh,and TDK Corporation.We also compete with internal design groups at image sensor and lens manufacturers and camera module companies such as Omnivision Techno
84、logies,Inc.,Aptina Imaging Corporation,STMicroelectronics,Inc.,Samsung Electronics Co,Ltd.,and Toshiba Corporation.The internal design groups of these companies may create imaging and optics solutions that compete with our own.Employees As of December 31,2012,we had 1,085 employees,with 528 in manuf
85、acturing,373 in research and development(including employees who perform engineering,assembly,design and infrastructure services under our service agreements with third parties)and 146 in general administration,including general management,legal,human resources,information technology,finance and acc
86、ounting,and 38 in sales,marketing and licensing.We have never had a work stoppage among our employees and no personnel are represented under collective bargaining agreements other than certain ordinary course agreements of an employers collective which may bind our Israeli subsidiaries under Israel
87、law.We consider our relations with our employees to be good.5 Table of Contents Customer Concentration All of our revenues are denominated in U.S.dollars.The following table sets forth revenues generated from customers,all of which are in the Intellectual Property segment,comprising 10%or more of to
88、tal revenues for the periods indicated:A significant portion of our revenues are derived from customers headquartered outside of the U.S.,principally in Asia,and we expect these revenues will continue to account for a significant portion of total revenues in future periods.The table below lists the
89、geographic regions of the headquarters of our customers and the percentage of revenues derived from each region for the periods indicated:See Note 16“Segment and Geographic Information”in the Notes to Consolidated Financial Statements for additional geographic information about our revenues and long
90、-lived assets.The international nature of our business exposes us to a number of risks,including,but not limited to:Available Information Our internet address is .We make available on our internet website,free of charge,our annual report on Form 10-K,quarterly reports on Form 10-Q,current reports on
91、 Form 8-K and any amendments to those reports,as soon as reasonably practicable after we electronically file such material with,or furnish it to,the SEC.Our SEC reports can be accessed through the investor relations section of our website.The information found on our website is not incorporated into
92、 this or any other report we file with or furnish to the SEC.6 Years Ended December 31,2012 2011 2010 Micron Technology,Inc.13%19%13%Spansion Inc.11 *Powertech Technology Inc.10 25 21 *denotes less than 10%of total revenues.Years Ended December 31,2012 2011 2010 U.S.45%29%29%Korea 17%17%13%Taiwan 12
93、%29%27%Japan 11%13%15%China 8%3%2%Other Asia 4%4%8%Europe and other 3%5%6%laws and business practices favoring local companies;increased tax rates and withholding tax obligations on license revenues that we may not be able to offset fully against our U.S.tax obligations;difficulties in enforcing U.S
94、.judgments and orders against foreign persons and products made overseas;less effective protection of intellectual property than is afforded in the U.S.or other developed countries;and international terrorism,particularly in emerging markets.Table of Contents Our operations and financial results are
95、 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 o
96、ur revenues could decrease substantially.We earn a significant amount of our revenues from a limited number of customers.For the years ended December 31,2012,2011 and 2010,there were three,two and two customers,respectively,that each accounted for 10%or more of total revenues.We expect that a signif
97、icant 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.Powertech Technology Inc.(“PTI”),one of our customers that accounted for 10%or more of revenue for the year en
98、ded 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 lice
99、nse agreement.See Part I,Item 3 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 3
100、1,2012.If we are not able to replace the revenue from PTI or if we receive an adverse determination in the litigation with PTI,it could have a substantial adverse impact on our royalty revenue in the near term.In addition,our license agreement with Micron Technology,Inc.,another customer that accoun
101、ted for 10%or more of revenue for the year ended December 31,2012,expired in May 2012.If we are not able to enter into a new license agreement with Micron Technology,Inc.,it would have a substantial adverse impact on our royalty revenue in the near term.We expect to continue to be involved in materi
102、al 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 sale
103、s 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 customers products.We also litigate to enf
104、orce 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 I,
105、Item 3 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 a
106、nd 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 enfor
107、ceability 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.Litigati
108、on 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
109、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 7 Item 1A.Risk Factors Table of Contents w
110、e 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 ma
111、y,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.The costs associated with legal proceedings are typically high,relatively unpredictable and not completely within our control.Thes
112、e 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 bu
113、siness 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
114、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
115、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 busine
116、ss 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 a proxy fight and the actions of activist stockholders.We recently received a notice from Starboard Value and Opportunity Master Fund Lt
117、d(“Starboard”)to nominate seven individuals for election to our Board of Directors,although Starboard has not yet announced how many nominees it will actually seek to elect.If a proxy contest results from this notice or proposal or if other activist activities continue,our business could be adversel
118、y affected because:A proxy contest 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 favor
119、able 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
120、 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 dynamic random access 8 Responding to proxy contests and oth
121、er 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 a
122、ttract 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
123、could in turn have a material adverse effect on our business prospects and on our results of operations and financial condition.Table of Contents memory(“DRAM”)manufacturer,which is expected to close in the first half of 2013 subject to numerous closing conditions and approvals.If we fail to replace
124、 the expired Micron Technology,Inc.license agreement,it will 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
125、 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 adv
126、ersely 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 roy
127、alties.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
128、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 patent portfolios on favorable terms.Moreover
129、,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.Furthermor
130、e,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 failu
131、re 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 o
132、ur business.As more fully described in Part I,Item 3 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
133、filed in the U.S.Patent and Trademark Office(“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 proc
134、eeding,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 pat
135、ents and patent claims in litigation and administrative proceedings.If the PTOs 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 a
136、dministrative 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 ou
137、tcome 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 b
138、ody 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
139、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.9 Table of Contents Furthermore,regardless of the merits of any cla
140、im,the continued maintenance of these legal and administrative proceedings may result in substantial legal expenses and diverts our managements time and attention away from our other business operations,which could significantly harm our business.Our enforcement proceedings historically have been pr
141、otracted 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 c
142、ause 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 t
143、o 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 a
144、nnual 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
145、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 adver
146、sely 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
147、 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“
148、first inventor to file”system,limiting where a patentee may file a patent suit,requiring the apportionment of patent damages,replacing interference proceedings with derivation actions and creating a post-grant opposition process to challenge patents after they have been issued.The effects of these c
149、hanges 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 reg
150、ulations 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 pat
151、ent 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 c
152、ould 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 Instrum
153、ents,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 pai
154、d-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 10 Table of
155、 Contents 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
156、,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 t
157、o 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 examp
158、le,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 a
159、re 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 ro
160、yalty 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 sig
161、nal 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 seg
162、ments 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 busin
163、ess 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
164、 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 bu
165、siness model,many of which are outside of our control,such as the following:11 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 l
166、icensed technology,in a quantity sufficient to enable volume manufacturing;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 de
167、mand 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.Table of Contents It is difficult for us to verify royalty amounts owed to
168、 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 boo
169、ks 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
170、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 depen
171、ds on our ability to become a vertically integrated camera module supplier.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,person
172、al 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 and becoming a vertically integrated camera module supplier.Any of the following factors
173、 could limit the growth of our DigitalOptics technology,and therefore could have an adverse effect on our business and results of operations:The markets for semiconductors and related products and camera modules are highly concentrated,and we may have limited opportunities to license our technologie
174、s 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.Conso
175、lidation 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 expected to close in the first half of 2013 subject to numerous closing conditions and approvals.Acc
176、ordingly,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
177、.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
178、 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 bee
179、n 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 throu
180、gh which they sell products incorporating our DigitalOptics technologies.As a result,our financial results could be materially adversely affected.12 our ability to innovate and provide solutions at lower costs,with improved performance,or with more enhanced features than our competitors;the relevant
181、 markets rate of adoption of our DigitalOptics technologies;our ability to build a robust supply chain to support product ramp plans;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 marke
182、t share or design wins from us.Table of Contents 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,an
183、d 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,availa
184、bility 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
185、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
186、 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 are in the process of converting the manu
187、facturing facility in Zhuhai,China that we acquired in June 2012,from fixed focus camera modules manufacturing,to the production of our MEMS-based camera modules.However,we do not currently have a customer base for MEMS-based camera modules,and we cannot be certain whether and when these and our oth
188、er efforts will lead to the generation of meaningful revenue from our MEMS-based camera modules.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
189、.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 s
190、uch 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 o
191、r 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
192、,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 e
193、asily 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
194、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 illuminat
195、ion for lithography,face competition from products offered by other Micro-optics manufacturers such as JenOptik A.G.as well as emerging technologies such as ASMLs FlexRay technology.Our wafer-level camera solution competes with both the traditional lens vendors who enjoy an established supply chain,
196、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
197、well as internal design groups of our customers providing similar technologies by employing 13 Table of Contents 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
198、 technologies emerge.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 cou
199、ld 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 rela
200、tionships 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 str
201、ategic 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 r
202、easonable 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 pre
203、dict 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
204、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 devel
205、oping,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 wi
206、th 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 f
207、ail 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 protec
208、t 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 operati
209、ng 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 o
210、ur 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 man
211、ner 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 14 Table of Contents royalties.For example,our business may suffer if we are unable
212、 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 secre
213、ts 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
214、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 ind
215、ependently 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 t
216、he 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.For example,it may be particularly difficult to protect our Di
217、gitalOptics technology and intellectual property in the manufacturing facility in Zhuhai,China that we acquired in June 2012.Therefore,in certain jurisdictions,including China,we may be unable to protect our technology and intellectual property adequately against unauthorized use,which could adverse
218、ly affect our business.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-con
219、suming and costly to defend against and will divert managements 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 p
220、roducts 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 indemnify
221、ing 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 flow
222、s 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 u
223、sing 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,includi
224、ng 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 n
225、ext-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 al
226、ternative packaging technology for use with next generation high 15 Table of Contents 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
227、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 ch
228、ips,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 s
229、hortages 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,generat
230、ing 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 loss
231、es 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 educ
232、ate 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
233、 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
234、 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 s
235、evere 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 m
236、ay 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.The success of our recen
237、tly acquired manufacturing facility in Zhuhai,China will depend on our ability to realize the anticipated benefits from integrating the acquired business and assets into our operations.We may fail to realize the anticipated benefits from our integration of the manufacturing facility and related asse
238、ts that we acquired in Zhuhai,China from Flextronics International,Ltd.in June 2012(the“Zhuhai Transaction”)on a timely basis,or at all,for a variety of reasons,including the following:16 difficulties operating in the Peoples Republic of China,where the Company has limited direct prior experience;di
239、fficulties integrating the relatively large number of personnel from the acquired business into our human resource processes and programs;Table of Contents Our failure to successfully integrate the acquired business and assets may delay or undermine our ability to execute on our business plan for th
240、e DigitalOptics business,which would adversely affect our business and operations.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 acquired our first large-scale man
241、ufacturing operation in the Zhuhai Transaction,and are in the process of transforming that manufacturing operation away from the production of fixed focus camera modules toward camera modules based on our MEMS technology.We are also investing in lens design and manufacturing capability in our factor
242、y 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 a
243、ny 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
244、.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 successfu
245、lly 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
246、litigation risks arising from our Intellectual Property business.Our commencement of large-scale manufacturing operations resulting from the completion of the Zhuhai Transaction and completion of our Taiwan factory could significantly increase the risk that our DigitalOptics business becomes subject
247、 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
248、 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 Intell
249、ectual 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
250、 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 r
251、evenues 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,assem
252、bly and test capabilities.Doing so could present risks to our operations,including:17 failure to maintain relationships with existing suppliers of the acquired business or to obtain alternate sources of supply for such business;and failure to integrate our existing DigitalOptics technologies,such as
253、 our MEMS solutions,with the manufacturing capabilities of the acquired business.reduced control over delivery schedules,yields,capacity and quality assurance;limited number of vendors capable of manufacturing our high technology products;Table of Contents If any vendor in the supply chain materiall
254、y 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 prod
255、uct liability claims which could result in substantial costs to us.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 futur
256、e 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
257、 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 co
258、mparable 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 mat
259、erials 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 availab
260、le 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 becom
261、e 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 com
262、mon 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
263、.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:18 limited availability of vendor capacity for our products
264、 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 prod
265、ucts and services supplied to us;and overhead costs of developing and maintaining a global supply chain.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 cause
266、d 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;Table of Contents Due to fluctuations in our operating results,reports from market and security analysts,litigat
267、ion-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.I
268、n 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 div
269、ersion of managements 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.O
270、ur initial dividend policy,adopted and announced in March 2012,contemplates the payment of a regular quarterly cash dividend of$0.10 per share on our outstanding common stock.We expect to continue to pay quarterly cash dividends on our common stock at the rate set forth in our current dividend polic
271、y.However,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,financia
272、l 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
273、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.19 decrease in our revenues caused by price erosion on high performance camera modules inco
274、rporating 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 acceptanc
275、e 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 technol
276、ogies;changes in demand for semiconductor chips in the specific end markets in which we concentrate;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
277、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.Table of Contents
278、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 December 31,2012,we held approximately$103.8 million in cash and cash equivalents and$338.8 million in short-term inv
279、estments.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.The weakened financial markets,originally caused by the sub-prime mortgage crisis in the U.S.,has at
280、 times adversely impacted the general credit,liquidity,market and interest rates for these and other types of 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 purcha
281、sing 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
282、 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,de
283、clining 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
284、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
285、 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 industr
286、y.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,pract
287、ices 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 bodi
288、es.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 f
289、inancial 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 A
290、ccounting 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 prot
291、ecting 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 China and Taiwan,and our research and development
292、facilities in Ireland,Japan,Romania and Taiwan to design,develop,test or market 20 Table of Contents certain technologies.International operations are subject to a number of risks,including but not limited to the following:Our intellectual property is also used in a large number of foreign countries
293、.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 the
294、se 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 posi
295、tion,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 plan to continue the exp
296、ansion of our operations,domestically and internationally,and may continue to do so through both internal growth and acquisitions.For example,in June 2012,we closed the Zhuhai Transaction.This expansion may strain our systems and management,operational and financial controls and resources.In additio
297、n,we are likely to incur higher operating costs.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
298、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 unsuccess
299、ful 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
300、are exploring a possible separation of our DigitalOptics business from the parent corporation and,in November 2012,we announced the planned closure of our facility located in Tel Aviv,Israel and the facility will be closed 21 fluctuations in exchange rates between the U.S.dollar and foreign currenci
301、es 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 tha
302、t differ between jurisdictions;laws and business practices favoring local companies;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 incr
303、ease 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
304、 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.Table of Contents in the first quarter of 2013.We also announced
305、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 f
306、lows.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 ri
307、sk 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 productivi
308、ty 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 wi
309、ll 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 furthe
310、r disruption and additional unanticipated expense.We may be unable to identify or complete a favorable transaction to separate our DigitalOptics business.Although we have previously announced that we are exploring a possible separation of our DigitalOptics business from the parent corporation and in
311、centivized our CEO to successfully spin off this business segment,we have not set a definitive timetable for completing our exploration of strategic alternatives for the DigitalOptics business,and there can be no assurance that the process will result in the identification or selection of a transact
312、ion,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 such a transaction,including the ongoing operating losses of the DigitalOptics business,which make it uncertain whether
313、 such business could be operated as a stand-alone company or would attract interest from any potential buyer.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 and may make additional acquisition
314、s.Even if the manufacturing operation acquired in the Zhuhai Transaction is successfully integrated into our operations,the success of our business plan for the DigitalOptics business,including the goal to become a vertically integrated camera module supplier,will require substantial additional capi
315、tal expenditures,increased working capital,and additional acquisitions.For example,we recently made significant capital expenditures to build a manufacturing facility on Taiwan.Additionally,we are making inventory purchases and entering into related purchase commitments.These and other investments i
316、n our DigitalOptics business may result in restructuring and asset impairment charges which would adversely affect the financial results of the Company.There can be no assurance that our existing capital resources and cash from operations will be sufficient to fund such capital expenditures and make
317、 additional acquisitions,and such uncertainty could be compounded if we pursue a separation of our DigitalOptics business,a possibility we announced in April 2011.We may need to raise capital or fund acquisitions through the issuance of debt or equity securities or the sale of assets;however,we may
318、not be able to secure debt financing or equity financing on reasonable terms,if at all.Even if we have or obtain all necessary funding,we may nevertheless be unable to identify and execute suitable acquisitions to grow the DigitalOptics business.If our existing capital resources or cash from operati
319、ons are not sufficient and we are unable to obtain necessary capital to execute on our DigitalOptics business plan,or to make additional acquisitions,it would adversely affect our business,financial condition and results of operations.Disputes regarding our intellectual property may require us to in
320、demnify 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 a
321、gainst our licensees,and some 22 Table of Contents 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 obliga
322、tions 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 licensees development,marketing and sales of licensed DigitalOptics products could be severely disrupted or shut down as a result of litigation,which
323、in turn could have a material adverse effect on our business operations,consolidated financial position,results of operations and cash flows.If we lose any of our key personnel or are unable to attract,train and retain qualified personnel we may not be able to execute our business strategy effective
324、ly.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 b
325、y 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 termin
326、ate their employment.The loss of any of our senior management or other key personnel could harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate.Moreover,some of the individuals on our management team have been in their current
327、positions for a relatively short period of time.Our future success will depend to a significant extent 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 an
328、d 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 wi
329、th 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 cou
330、ld 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(
331、“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 suc
332、h 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.
333、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 tele
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