This Quarterly Report on Form 10-Q ("Report"), including the "Management's Discussion and Analysis of Financial Condition and Results of Operation," contains forward-looking statements that involve risks and uncertainties within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. These statements typically may be identified by the use of forward-looking words or phrases such as "may," "will," "believe," "expect," "plan," "intend," "goal," "anticipate," "should," "planned," "estimated," "potential," and "continue," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements whenever they appear in this Report. Forward-looking statements include, without limitation, statements regarding: our intentions, beliefs and expectations regarding our future financial performance and operating results; anticipated trends in our business; our belief that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months; and our expectations regarding our customers.

Among the factors that could cause actual results to differ materially are the factors detailed in Item 1A, "Risk Factors," of Part II of this Report, which readers should review. Given these uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Report and the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2008.

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the full fiscal year.

Overview

Symyx Technologies, Inc. enables global leaders in the life sciences, chemical, energy, and consumer and industrial products industries to optimize and accelerate their scientific research and development ("R&D"). Through our expertise in scientific informatics management, workflow optimization, and micro-scale, parallel experimentation, we help companies transform their R&D operations to minimize the time their scientists spend on routine, repetitive tasks and to maximize the return on their R&D investments. Symyx software, tools, and research services enable scientists to design, execute, analyze and report experimental results faster, easier and less expensively.

Symyx Software provides a suite of scientific software, content and technology to support R&D information lifecycle management across the enterprise, improving scientists' ability to search, develop, manage, manipulate and store research data and to manage intellectual property. Symyx Software is the larger of our business units, accounting for 61% of our first half of 2009 revenue.

Symyx HPR provides various ways for customers to access our proprietary high-throughput technologies for parallel (versus serial) experimentation, enabling greater speed and breadth of research. Symyx HPR develops and applies high-throughput technologies that empower customers to engage in faster, broader experimentation by working with small amounts of materials in an automated fashion and utilizing parallel, or array-based, testing. Our customers can bring some of the capabilities of our laboratories into their own organizations by purchasing our tools to integrate and automate laboratory experimentation to increase research productivity. Customers can also leverage our expertise and infrastructure through the purchase of research services, with programs that range from directed research to strategic collaborative relationships. The reorganization of services, along with the combination of tools and research into HPR are intended to leverage the expertise and experience of our technical staff and sales team, and provide new revenue opportunities to replace the expected continued decline in research-related revenue.

Through software licensing, automated workflow sales and research services, we provide customers multiple ways to begin working with us. Our goal is to leverage and integrate all of our offerings so that, over time, our customers can easily access our entire technology platform to improve their R&D productivity and reduce program risk.

Highlights for the quarter ended June 30, 2009 include:

· Our net loss per share was $0.04 for the quarter, improving from our $0.05 loss per share in the same quarter of 2008 despite lower revenue in the current period. Our net loss per share was $0.13 for the first half of 2009, a substantial improvement over our $0.25 net loss per share for the same period of 2008, reflecting the benefits from our 2008 restructuring and the success of our continuing focus on controlling operating expenses.

· We ended the quarter with cash and cash equivalents totaling $84.9 million, a significant increase over our total cash, cash equivalents and marketable securities of $66.4 million at December 31, 2008.

· We entered into an agreement with a top-15 pharmaceutical company and secured a commitment from another top 15 pharmaceutical company for enterprise deployment of our Symyx Notebook 6.0 electronic laboratory notebook ("ELN") platform, bringing our ELN deployment to a total of 5 top 15 pharmaceutical companies. Symyx Software was also named a top 10 life science software vendor by IDC's Health Industry Insights.

· Symyx HPR launched its Contract Development and Manufacturing Organization ("CDMO") to help biopharmaceutical companies move promising drug candidates to clinical trials faster and more reliably with integrated formulation development, and preclinical and contract Good Manufacturing Practice ("CGMP") fill/finish manufacturing. HPR's Screening Pressure Reactor also won an R&D 100 Award for being one of the most technologically significant products introduced into the marketplace in 2009.

Our net loss for the three months ended June 30, 2009 was $1.2 million, compared to a net loss of $1.5 million for the three months ended June 30, 2008. Our net loss for the six months ended June 30, 2009 was $4.3 million, compared to a net loss of $8.3 million for the six months ended June 30, 2008. The decrease in net loss was due primarily to significantly lower operating expenses as the result of our restructuring in December 2008 and our continuing expense control efforts.

Stock-based compensation expense recognized in our results of operations for the three and six month periods ended June 30, 2009 was as follows (in thousands):

                                       Three Months Ended June 30,           Six Months Ended June 30,
                                        2009                2008              2009               2008
Costs of revenue                    $          68       $          74     $        216       $        134
Research and development                      385                 353              399                723
Sales, general and administrative             738                 589            1,456              1,304
Total                               $       1,191       $       1,016     $      2,071       $      2,161

Critical Accounting Policies and Use of Estimates

We prepare our financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States ("GAAP"). In "Critical Accounting Policies" under Item 7, and in Note 1 of the Notes to the Consolidated Financial Statements included under Item 8, in each case of our Annual Report on Form 10-K for the year ended December 31, 2008, we describe the significant accounting policies and methods used in the preparation of the consolidated financial statements. Preparing financial statements and related disclosures requires management to exercise judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management's application of accounting policies. Estimates include the assumptions used in determining the implied fair value of goodwill, the forfeiture rates for stock-based awards, the collectability of outstanding accounts receivables, reserve for excess or obsolete inventory, future warranty expenditures, assumptions such as the elements comprising a revenue arrangement, including the distinction between software upgrades/enhancements and new products, when our products achieve technological feasibility, the potential outcome of future tax consequences of events recognized in the our financial statements or tax returns and the fair value of acquired intangible assets. We evaluate our estimates, including those mentioned above, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. We have not materially changed these policies from those reported in our Annual Report on Form 10-K for the year ended December 31, 2008, except for the following additional critical accounting policy regarding deferred costs.

Deferred Costs

Occasionally we enter into certain software consulting service and tools product arrangements under which all the revenue is deferred until certain elements of the arrangements are delivered in the future. In these cases, the direct variable expenses, not exceeding the expected revenue, are deferred and included in other current assets on the balance sheet until the revenue is recognized. Direct variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of June 30, 2009 and December 31, 2008, we deferred approximately $1.3 million and $2.2 million, respectively, of direct variable expenses related to software consulting service and tools product arrangements where the revenue is deferred until future periods.

Results of Operations

Revenue
                                          Three Months Ended June 30,
                                           2009                 2008                  Change
(in thousands, except percentages)
Service                               $       17,246       $       20,240     $  (2,994 )         (15 %)
Product                                        5,595                5,016           579            12 %
License fees, content and royalties           13,786               15,395        (1,609 )         (10 %)
Total revenue                         $       36,627       $       40,651     $  (4,024 )         (10 %)



                                          Six Months Ended June 30,
                                          2009                2008                  Change

Service                               $      33,946       $      38,755     $  (4,809 )         (12 %)
Product                                       8,314               9,584        (1,270 )         (13 %)
License fees, content and royalties          27,761              29,219        (1,458 )          (5 %)
Total revenue                         $      70,021       $      77,558     $  (7,537 )         (10 %)

Revenue for the three months ended June 30, 2009 decreased relative to the same period of 2008 due to a $2.2 million, or 61%, reduction in software consulting services, lower software content and license revenue, and lower research service revenue, partially offset by slightly higher Symyx HPR tools sales.

Revenue for the six months ended June 30, 2009 decreased relative to the same period of 2008 due to lower research service revenue following the May 2008 expiration of our primary alliance agreement with ExxonMobil, the second quarter 2009 decreases in Symyx Software revenue described above, and lower Symyx HPR tools sales.

Concentration of Revenue

ExxonMobil and The Dow Chemical Company ("Dow") are the only two major customers that contributed more than 10% of our revenue for the periods addressed below. The aggregate revenue, and corresponding percent of revenue by each revenue component, from ExxonMobil and Dow is as follows (in thousands, except percentages):

                                                    Three Months Ended June 30,
                                                     2009                  2008
        Service                               $   4,335       25 %   $  7,357       36 %
        Product sales                             1,511       27 %      1,847       37 %
        License fees, content and royalties       3,659       27 %      3,662       24 %
        Total                                 $   9,505       26 %   $ 12,866       32 %




                                                     Six Months Ended June 30,
                                                    2009                  2008
        Service                               $  8,334       25 %   $ 14,510       37 %
        Product sales                            2,369       28 %      2,949       31 %
        License fees, content and royalties      7,697       28 %      8,950       31 %
        Total                                 $ 18,400       26 %   $ 26,409       34 %

With the MDL acquisition in October 2007, we have substantially broadened our customer base, but continue to expect that Dow and ExxonMobil will remain our two largest customers in 2009 based on existing commitments. However, we further expect Symyx HPR revenue to decrease materially in 2009 as a result of the May 2008 expiration of our main alliance agreement with ExxonMobil.

Revenue by Segment

We segregate revenue into the following business units:

                                         Three Months Ended June 30,
                                          2009                 2008                  Change
(in thousands, except percentages)
Symyx Software                       $       20,775       $       24,076     $  (3,301 )         (14 %)
Symyx HPR                                    15,852               16,575          (723 )          (4 %)
Total                                $       36,627       $       40,651     $  (4,024 )         (10 %)

                                          Six Months Ended June 30,
                                           2009                 2008                 Change

Symyx Software                       $       42,525       $       44,101     $  (1,576 )          (4 %)
Symyx HPR                                    27,496               33,457        (5,961 )         (18 %)
Total                                $       70,021       $       77,558     $  (7,537 )         (10 %)

Symyx Software generates revenue primarily from the licensing of software, including the Isentris platform and our lab execution and analysis software ("LEA") and Electronic Laboratory Notebook ("ELN") products, content subscriptions, and providing associated support, maintenance and consulting services. Software revenue decreased in the three and six months ended June 30, 2009 compared with the same periods in 2008 due to a substantial decrease in software consulting services revenue in response to the continued challenging economic conditions affecting all industries, and lighter content and licensing revenue, partially offset by an increase in maintenance revenue due to our increased software installation base.

Symyx HPR generates revenue primarily from providing directed and collaborative research services and selling tools and associated services, and to a lesser extent, licensing materials and other intellectual property. The decrease in Symyx HPR revenue in the three and six months ended June 30, 2009 from the same periods of 2008 resulted largely from the decrease in service revenue from ExxonMobil by $2.1 million and $5.8 million, respectively, due to the expiration of our primary agreement with ExxonMobil in May 2008. The balance of the decline for the six month period of 2009 compared with the same period of 2008 was due to lower tools sales while our customers continued to reduce their capital expenditures.

Cost of Revenue

                                        Three Months Ended June 30,
                                         2009                 2008                  Change
(in thousands, except
percentages)
Costs of revenue:
Cost of service                     $        6,265       $        5,174     $   1,091            21 %
Cost of products                             3,124                2,112         1,012            48 %
Cost of license fees, content and
royalties                                    1,469                1,315           154            12 %
Amortization of intangible assets
arising from business
combinations                                 1,634                1,786          (152 )          -9 %
Total costs of revenue              $       12,492       $       10,387     $   2,105            20 %

                                         Six Months Ended June 30,
                                              2009                 2008             Change

Costs of revenue:
Cost of service                     $       12,778       $        9,840     $   2,938            30 %
Cost of products                             4,287                4,299           (12 )           *
Cost of license fees, content and
royalties                                    2,750                2,918          (168 )          -6 %
Amortization of intangible assets
arising from business
combinations                                 3,421                3,567          (146 )          -4 %
Total costs of revenue              $       23,236       $       20,624     $   2,612            13 %

* Less than 1%

Total costs of revenue represented 34% and 26%, respectively, of total revenue for the three months ended June 30, 2009 and 2008. Total costs of revenue represented 33% and 27%, respectively, of total revenue for the six months ended June 30, 2009 and 2008. The increase in costs of revenue as a percentage of total revenue was was due to incremental expenses from our new HPR formulations business resulting from our IntegrityBio acquisition which, as an emerging service business, has lower margins than our other business lines. Also, as we expand our research services activities, certain personnel who currently work on our internally-funded R&D projects will increasingly be used to provide services to customers, thereby their associated expenses will be included in cost of revenue. Accordingly, over time, our gross margin percentage may decline, but we would expect a corresponding decrease in our research and development expenses.

Cost of service includes certain operating expenses related to software consulting and software and hardware maintenance and costs associated with research services for life science and chemical and energy industries. Cost of service increased 21% and 30%, respectively, for the three and six month periods ended June 30, 2009 over the same periods in 2008 primarily due to the incremental costs from the acquisition of IntegrityBio in August 2008.

The fluctuation in the cost of product sold in the comparable periods of 2009 and 2008 was primarily due to changes in product mix.

Cost of license fees, content and royalties consists of primarily royalties we pay for third-party content we include in our content subscription offerings, and remained consistently at approximately 20% of content revenue recognized.

Other Operating Expenses

                                                             Three Months Ended June 30,
                                              2009                                                  2008
                                                      As a                                                  As a
                                                   Percentage                                            Percentage
                                  Amount (in        of Total         Change over        Amount (in        of Total
                                    000's)          Revenue         Previous Year         000's)          Revenue
Research and development          $    13,343               36 %               (32 %)   $    19,729               48 %
Sales, general and
administrative                         11,373               31 %               (20 %)        14,288               35 %
Restructuring charges                       -                0 %                na                -                0 %
Amortization of intangible
assets arising from business
combinations                            1,447                4 %                (2 %)         1,479                4 %
Total operating expenses          $    26,163               71 %               (26 %)   $    35,496               87 %



                                                              Six Months Ended June 30,
                                              2009                                                  2008
                                                      As a                                                  As a
                                                   Percentage                                            Percentage
                                  Amount (in        of Total         Change over        Amount (in        of Total
                                    000's)          Revenue         Previous Year         000's)          Revenue
Research and development          $    26,909               39 %               (33 %)   $    40,416               52 %
Sales, general and
administrative                         22,470               32 %               (24 %)        29,521               38 %
Restructuring charges                     208                *                  na                -                0 %
Amortization of intangible
assets arising from business
combinations                            2,892                4 %                (2 %)         2,956                4 %
Total operating expenses          $    52,479               75 %               (28 %)   $    72,893               94 %

Research and Development ("R&D") Expenses

Our R&D expenses consist primarily of:

• salaries and other personnel-related expenses;

• facilities costs;

• supplies; and

• depreciation of owned facilities and laboratory equipment.

Total R&D expenses for the three and six months ended June 30, 2009 decreased significantly in both dollar and percentage terms versus the same periods in 2008 due (i) to the significant workforce reduction we implemented in December 2008, (ii) to lower depreciation expenses following the write-down of fixed asset fair values in the fourth quarter of 2008, and (iii) to the fact that an increasing amount of personnel and other associated expenses related to research services provided to life science and chemical and energy industries have been recorded as cost of service rather than R&D expense.

The innovations and advances generated by our research laboratories support our Symyx HPR and Symyx Software operations, and generate intellectual property and discovered materials. We expect to continue to devote significant resources to R&D.

Research and development includes those activities performed on behalf of some of our alliance partners including Dow and ExxonMobil. As we do not track fully burdened R&D costs or capital expenditures by project, these amounts are not included in costs of service. However, based on hours spent on each project, we estimate the R&D efforts undertaken for various projects were as follows:

                                               Three Months Ended June 30,             Six Months Ended June 30,
                                               2009                  2008              2009                 2008
Customer-sponsored projects                           30 %                  41 %             34 %                 41 %
Internally-funded projects                            70 %                  59 %             66 %                 59 %
Total                                                100 %                 100 %            100 %                100 %

The decrease in R&D hours spent on customer-sponsored projects from 2008 to 2009 was primarily due to the decline in our collaboration with ExxonMobil.

Sales, General and Administrative ("SG&A") Expenses

Our SG&A expenses consist primarily of (i) personnel costs for sales and marketing, general management, finance, legal and human resources, (ii) associated facilities and information technology expenses, (iii) commissions to our foreign sales agents, and (iv) professional expenses, such as outside legal and accounting fees. The decrease in SG&A expenses for the three and six months ended June 30, 2009 compared to the same periods in 2008 was primarily due to reduction in workforce implemented in December 2008 and tighter control of operating expenses. We expect to continue to invest in our sales and support teams and our marketing activities to capitalize on our market opportunities.

Interest and Other Income, Net

Interest and other income, net, for the three and six months ended June 30, 2009 significantly decreased from interest and other income in the same periods of 2008, which included a $1.6 million gain from the sale of our Occupational Health Service business and a $960,000 foreign currency gain.

We recorded an income tax benefit of $345,000 and $2.0 million for the three and six months ended June 30, 2009, respectively, compared to an income tax benefit of $915,000 and $5.2 million for the three and six months ended June 30, 2008, respectively. The effective income tax benefit rate was 22% and 38% for the three month periods ended June 30, 2009 and 2008, respectively. The effective income tax benefit rate was 31% and 39% for the six month periods ended June 30, . . .