) reported a fourth-quarter net loss of 25 cents, which was lower
than the Zacks Consensus Estimate of 32 cents. Revenue was in
line with expectations. Results included a net gain of $24.7
million in lieu of past production payments.
Tessera's reported revenue of $53.2 million was down 26.8%
sequentially and 6.2% year over year.
Tessera expects the Intellectual Property business to
gradually become a smaller part of its revenue, while Digital
Optics (its camera module business for smartphones) becomes a
larger segment. Management is not offering prior guidance during
the transition period due to the uncertainties involved
(converting and equipping the facility, training and building
initial production capability).
In the last quarter, Intellectual Property continued to
generate the bulk of Tessera's revenue (86%) compared to just 14%
for Digital Optics. Intellectual Property revenue was down 25.5%
sequentially and 12.2% year over year. However, the broadening of
its relationship with Hynix (an 8-year contract) and STATS
ChipPAC (5-year contract) last month should help revenues.
Tessera has had problems with its largest licensees:
), Powertech, SK Hynix and
). The company resolved issues with Amkor in the third quarter
and has now announced resolution of its conflict with Hynix.
Tessera is also developing other licensable technology beyond
the traditional packaging area that would translate to additional
revenue going forward.
The Digital Optics line declined 31.1% sequentially although
it was up 32.6% from last year. Tessera expects to make this the
primary segment, which should simplify the protection of its
intellectual property (since in this case its technology is not
being licensed, but sold within an internally developed
The segment has transitioned from its imaging and optics focus
to an ODM of camera modules for the smartphone market, which
management currently estimates to be a $4.5 billion opportunity.
Tessera is seeing some success with its new MEMS lens
subassembly. In the last quarter, the company started sampling
its MEMS autofocus camera modules at 3 smartphone makers.
The pro forma gross margin excluding amortization of
intangibles was 80.3%, up 80 bps sequentially and down 1,030 bps
from a year ago. A high gross margin is typical for a technology
company that is largely dependent on the licensing model.
The sequential gain in the last quarter was the result of past
production payments in the licensing business although even this
was not enough to offset the decline from last year because of
the very strong growth on the product side (Digital Optics).
Tessera's quarterly operating expenses were $60.2 million, up
11.6% from the $54.0 million reported in the previous quarter.
The operating margin shrunk 3,807 bps to -32.8%, impacted by much
higher R&D and litigation expenses (both in dollars and as a
percentage of sales), made worse by higher SG&A expenses (as
a percentage of sales) and slightly offset by the gross margin
Tessera's pro forma net loss was $12.9 million, or 24.2% of
revenue compared to income of $3.5 million, or 4.8% of revenue in
the Sep 2012 quarter and $5.6 million, or 10.5% in the Dec
quarter of 2011. This pro forma net income calculation excludes
restructuring charges and intangibles amortization charges on a
tax-adjusted basis but includes stock based compensation. The pro
forma estimates may not match management's presentation due to
the inclusion/exclusion of some items that were not considered by
Net loss on a GAAP basis was $19.6 million ($0.38 per share)
compared to net loss of $1.1 million ($0.02 per share) in the
previous quarter and profit of $2.6 million ($0.05 per share) in
the Dec quarter of 2012.
Tessera's balance sheet remains strong, despite the $23.3
million reduction in cash and short term investments to $442.6
million. It also has no debt.
Inventories were down 53.8% during the quarter, with turns
going from 18.3X to 27.8X. DSOs went from 18 to 20.
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 and we had our doubts about whether this was worthwhile.
However, management has been discussing a refocusing of the
business toward a lower-margin, but safer product-oriented model
involving camera modules for mobile devices.
We think that this is the way to go, as it could reduce if not
eliminate the significant litigation expenses it has been
incurring. The fact that the target market is fast-growing is an
added bonus. We are encouraged by its plans to transition the
Chinese facility for volume production by the middle of 2013.
However, until the transition is complete, the company will
continue to see declining margins and profits, as well as more
difficult comparisons. Therefore, the shares are likely to remain
Tessera shares currently carry a Zacks Rank #5 (Strong Sell).
), which carries a Zacks Rank #2 (Buy), is another technology
company serving the semiconductor market and may be worth
considering at this time.
AMKOR TECH INC (AMKR): Free Stock Analysis
MICRON TECH (MU): Free Stock Analysis Report
TESSERA TEC INC (TSRA): Free Stock Analysis
ULTRATECH STEP (UTEK): Free Stock Analysis
To read this article on Zacks.com click here.