Tessera Technologies, Inc. (TSRA): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Tessera is a provider of back-end technology for semiconductor manufacturing. The company's second quarter earnings exceeded the Zacks Consensus Estimate. Management also provided an encouraging guidance. Management is refocusing the business on the higher-margin, higher-risk licensing model, so the host of patents, new technologies and customer wins are encouraging. The product portfolio has also been revamped to target the mobile segment, which should help growth. The major negative is the excessive legal charges, which are necessary to protect its IP. This is a special concern given Tessera's small size with respect to defaulters that are usually big technology companies such as Micron. However, its prospects appear to be improving, and therefore we have a Neutral recommendation on TSRA shares.

Overview:

San Jose, California-based Tessera Technologies, Inc. (TSRA) licenses its proprietary advanced integrated circuit (IC) packaging technology to semiconductor manufacturers, assemblers and material suppliers. Around 80.0% of 2012 revenue (93.0% in 2011) was generated through licensing fees related to its proprietary packaging technologies. Roughly 11.4% of revenue (7.0% in 2011) was generated through the sale of micro-optics products that impart camera functionality to electronic devices and services for back-end operations, such as prototype design, assembly-line consulting and related services. In 2012, the company generated the remaining 10.6% from past production payments (0.0% in 2011).

Sources of Revenue

The IP (intellectual property) licensing segment includes one-time start-up licensing fees and recurring royalty fees, based on production volumes and chip pin counts of the licensee. The royalties and fees related to previous periods are the result of license negotiations, or patent disputes that were resolved during the year. The primary users of Tessera's technology are dynamic random access memory (DRAM) producers.

Semiconductor Manufacturing Process

The semiconductor manufacturing process is composed of the front-end and back-end operations. Front-end processes involve the deposition or implantation of multiple thin layers of electronically conductive, semiconductive and insulating materials onto and within a silicon wafer to give multiple copies of integrated circuit devices.

Back-end processes involve the separation of the silicon wafer into individual semiconductor IC devices or die after addition of electrical contacts, die packaging and final testing. Electrical leads are then attached to the die, which is followed by die encapsulation and additional packaging within an environmentally protective encasement. Other than protection, the die package also facilitates the securing of electrical contacts to the protruding electrical leads and dissipation of thermal energy or heat from the die.

Tessera's IP

Tessera's advanced packaging techniques are focused on chip-scale package (CSP) and multi-chip package (MCP) technologies. At 2012-end, the company's intellectual property (IP) portfolio consisted of 1,135 U.S. patents (1,736 in 2011), as well as 713 foreign patents (902 in 2011) and pending applications.

The CSP solution is much smaller than a typical package, with shorter electrical leads and similar in size to the device itself. The real breakthrough in the design was that it permitted physical movement of the semiconductor device within the encasement, overcoming a variety of miniaturization induced problems, such as thermally induced stress. Licensees either incorporate the IP directly into proprietary designs or utilize the micro ball grid array ( BGA) or BGA-F (in which the die is flipped over) platforms.

The MCP solution physically stacks the semiconductor devices on top of each other within the package. There are four varieties of MCP products fold-over, ball stacked, folded stacked and chip stack. The company's Pyxis platform integrates RF-based semiconductors into a high-density RF package.

Tessera's packaging technology is incorporated in a wide range of ICs with end product applications that include digital cameras, MP3 players, personal computers, personal digital assistants (PDAs), video game consoles and wireless phones. New markets with potential include automotive and security.

(Note: Will be updated after the company files its 10K)

Being a back-end technology company, Tessera generates the largest chunk of its revenue from Asia/Pacific countries followed by the U.S. and then Europe & Other. Revenues declined double-digits across all geographies in 2012. The Asia/Pacific region (52% of 2012 revenue) was down 26.7%, the U.S. 45% (up 43.2%) and Europe & other 3% (down 55.6%).

The company's packaging technologies compete against the internal capabilities of semiconductor companies, such as Texas Instruments, Intel and Samsung, as well as technologies from other back-end technology companies, such as Advanced Semiconductor Engineering, Amkor Technology and STATS ChipPAC. Competitors for image and optics products include companies offering image sensors, such as OmniVision Technologies, Micron Technology, ST Microelectronics, Samsung Electronics and Toshiba Corporation.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: TSRA , IC , DRAM , CSP , MCP

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