) announced its plans to restructure its DigitalOptics
Corporation (DOC) business in a bid to cut costs and enhance
shareholder value by improving profitability.
In accordance with these plans, DOC will not make camera
modules going forward, but will instead focus on the development
of intellectual property and in particular Micro Electro
Mechanical System (MEMS)-based technologies.
Simply put, MEMS technologies enable the development of
smaller and lighter devices, which therefore use less power than
the VCM motors that power most modern smartphone cameras.
The company said that it will terminate its current lens
manufacturing program and instead partner with third-party
manufacturers to produce other components of the full camera
module. These steps are expected to reduce DOC's capital spending
to $5-$7 million versus $10-$15 million expected previously.
In addition, the restructuring plan includes the closure of
operations at its leased facility in Zhuhai, China where the
devices are produced. The company expects total restructuring,
asset impairment and other related exit charges to be in the
range of $17 million to $23 million, the majority of which is to
be incurred in the first quarter of 2013.
In the last few months, Tessera has taken quite a few steps to
reduce costs. In Feb 2013, the company stated that it would
reduce its corporate, general and administrative spending by 17%
to 21% by year end. Last November, it unveiled plans to lay off
about 180 employees, cease operations in Israel and pursue the
possible sale of its facility in North Carolina to refocus its
efforts on the mobile phone market and save costs.
Tessera remains a company with good intellectual property,
which it has protected with great difficulty. Over the past year,
the company has spent more than half its earnings for this
purpose. The company also reported disappointing 2012 financials
with an operating loss of $88.5 million on revenues of only $41.1
Given the current situation, management announced its decision
to shift the focus of the DOC business toward MEMS camera
modules, which target the smartphone market. We are positive
about this strategy, as it could reduce if not eliminate the
significant litigation expenses Tessera has been incurring.
According to a recent report from Strategy Analytics, the
number of smartphones used around the globe topped 1 billion for
the first time ever in the third quarter of 2012 and is projected
to double by 2015. The growing demand for smartphones has
provided ample growth opportunities for companies within the
technology sector, which will be an added bonus for Tessera.
Tessera shares currently carry a Zacks Rank #5 (Strong Sell).
Technology companies that have been performing well and are worth
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Mattson Technology Inc.
), all carrying a Zacks Rank #2 (Buy).
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