) first quarter loss of 6 cents was in line with the Zacks
Consensus Estimate. Results continued to be impacted by lower
volumes, as the company is yet to make up the loss of licensing
revenue on account of customers failing to renew contracts. It is
also entangled in various lawsuits that are a constant drain on its
resources, while not ensuring positive outcomes.
Tessera's reported revenue of $46.7 million was down 17.7%
sequentially and 31.1% year over year.
Additionally, revenue continues to be hurt by the non-renewal of
major licenses. Tessera has taken the matter to court, which has
ruled in its favor. However, licensees could appeal, so the
negative impact is likely to continue in the near term. On account
of the continued uncertainties, the company is not providing
guidance until the second month of the
Tessera renamed its two segments. Accordingly, the
Micro-electronics segment is now being referred to as Intellectual
Property, while the Imaging & Optics segment is being referred
to as Digital Optics.
Intellectual Property continued to generate the bulk of
Tessera's revenue (84% in the last quarter). Revenue was down 20.4%
sequentially and 27.2% year over year. The Digital Optics line (the
remaining 16%) was down 0.7% sequentially and 46.0% from last
Tessera stated that it has obtained 4 new licenses in the last
quarter, two of which were by important Japanese licenses. However,
the names were not disclosed. Management also mentioned discussions
with potential DRAM customers for long-term contracts, but stated
that they could take at least 18 months to close. The company also
mentioned that other licensable technology beyond the traditional
packaging area were being developed that would translate to
additional revenue going forward.
On the digital optics side, Tessera is seeing some success with
its new MEMS lens subassembly. The first internally developed MEMS
autofocus camera module will start sampling at multiple tier-1
mobile phone makers in the current quarter. The product is expected
to ship by the fourth quarter. The segment has now transitioned
from an imaging and optics focus to an ODM of camera modules for
the mobile phone market.
The pro forma gross margin excluding amortization of intangibles
was 92.0%, up 136 bps sequentially. The high gross margin is
typical for a technology company that is largely dependent on the
licensing model and quarterly fluctuations are largely mix-related,
as Tessera also generates a growing percentage of revenue from
products, which have much lower gross margins.
Tessera's quarterly operating expenses were $47.2 million, up
5.8% from the $44.6 million reported in the previous quarter.
However, the operating margin shrunk to -9.1%, down 2,525 bps
sequentially due to lower volumes, with both R&D and SG&A
expenses increasing as a percentage of sales.
Tessera's pro forma net income was $3.3 million, or -7.0% of
revenue compared to $6.0 million, or 10.5% of revenue in the
December 2011 quarter and $16.2 million, or 23.9% in the March
quarter of 2011.
Our pro forma net income estimate excludes intangibles
amortization charges on a tax-adjusted basis but includes stock
based compensation. Our pro forma estimates may not match
management's presentation due to the inclusion/exclusion of some
items that were not considered by management.
Net loss on a GAAP basis was $8.1 million ($0.16 per share)
compared to net income of $2.6 million ($0.05 per share) in the
previous quarter and income of $11.2 million ($0.22 per share) in
the March quarter of 2011.
Tessera's balance sheet remains strong, despite the $2.0 million
reduction in cash and short-term investments to $492.4 million. It
also has no debt. Deferred revenue declined 54% through 2011, but
was up nicely in the last quarter.
Inventories were up 3.9% during the quarter, with turns going
from 13.5X to 9.2X. DSOs went from 14 to around 15.
We think the company has good potential based on its
intellectual property portfolio and the licensing model that
supports attractive margins. However, this has proved to be a
double-edged sword for Tessera, with the cost of intellectual
) protection running very high.
Additionally, while Tessera is in talks for long-term DRAM
contracts, this will take time to materialize. Therefore, for the
time being, the company will continue to be impacted by pricing
pressures in the DRAM market.
The Zacks Rank on Tessera shares is #3, implying a Hold
recommendation over the next 1-3 months.
TESSERA TEC INC (
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