TSRA

Tessera Technologies, Inc. (TSRA)

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Tessera Technologies, Inc. (TSRA)

Q3 2008 Earnings Call Transcript

October 30, 2008, 4:30 pm ET

Executives

Moriah Shilton – IR

Hank Nothhaft – President and CEO

Mike Anthofer – EVP and CFO

Scot Griffin – EVP of Micro-electronics

Analysts

Brett Hodess – Merrill Lynch

Raj Seth – Cowen & Company

Arnab Chanda – Deutsche Bank

Hans Mosesmann – Raymond James

Bennett Notman – Davenport

Mehdi Hosseini – FBR

Michael Collin – Pacific America

Olga Levinson – Barclays

Kevin Vassily – Pacific Crest Security

Presentation

Operator

Good afternoon. My name is Don, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2008 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Moriah, you may begin your conference.

Moriah Shilton

Thank you, Don, and good afternoon, everyone. Thank you for joining us for the Tessera Technologies’ third quarter 2008 results conference call. This call is being broadcast live over the Internet. A webcast replay will be available at tessera.com for 90 days after the call. In addition, a telephone replay of this call will be made available for 48 hours beginning approximately two hours after the completion of this call. To listen to the replay in the US, please dial 800-642-1687, and internationally, dial 706-645-9291. The access code is 68087056.

I will now read a short Safe Harbor statement. During the course of this conference call, management may make projections or other forward-looking statements, which are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this release.

A detailed discussion of the material factors that may cause results to differ from the statements made can be found, for example, in the Risk Factors section of Tessera's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31st, 2007, and its quarterly report on Form 10-Q for the quarter ended June 30th, 2008.

On the call today for management are Hank Nothhaft, Tessera’s President and Chief Executive Officer; Mike Anthofer, Chief Financial Officer; and, Scot Griffin, EVP of Micro-electronics.

During this call today, management will discuss certain non-GAAP financial measures for comparison purposes only, and they will be using non-GAAP numbers in their prepared remarks. The non-GAAP amounts of cost of revenues; R&D; selling, general, and administrative expenses; net income; and, earnings per share do not include the following, stock-based compensation, acquired intangibles, amortization charges, charges for acquired in-process research and development, and non-cash tax expense.

Management believes the non-GAAP amounts provide a more meaningful comparison, measure of quarter-over-quarter and year-over-year financial performance. Please refer to the company's third quarter 2008 earnings press release and to the company's Web site for reconciliation of non-GAAP measures to GAAP.

After management's opening remarks, we will open the call to your questions. So that management is able to respond to as many of you as possible, please restrict yourself to an opening and a follow on question. Please re-enter the queue if you have additional questions.

And with that, I will now turn the call over to Hank.

Hank Nothhaft

Thank you, Moriah. And thanks all of you for joining us today. Though I’ve met many of you or spoken to you on the phone during the last three months, this is my first earnings call as CEO of Tessera even though I have been associated with the company as a director since 2004. Before I start my prepared remarks I wanted to welcome our new CFO, Mike Anthofer. I worked with Mike previously and know firsthand he has the ability to guide our finance team as we continue to grow our worldwide business. Welcome aboard, Mike. We certainly picked a dynamic quarter to join the company.

Now, a brief review of our third quarter financial results, our total third quarter 2008 revenues were $63.5 million, up 29% compared to last year’s third quarter. Royalty and license fees were $57.6 million, up 38% compared to last year’s quarter driven by the increasing amount of DRAM memory in computing and consumer devices, increased sales of 3G handsets, and stronger demand in wireless international markets. Our third quarter royalty and license fees also included catch up payments from audits conducted in the third quarter.

Non-GAAP operating expenses, excluding litigation, came in at $28.3 million below our guidance as we continue to focus on an efficient and effective infrastructure. Our litigation expense was high, however, at approximately $29 million. This resulted in non-GAAP earnings per share of $0.1 and a GAAP loss of $0.11 per share.

Michael will have more detail on our third quarter financial results and our fourth quarter financial guidance later. I would like to provide a few comments on our chip-scale packaging business. Historically, this business serves two primary markets, DRAM and wireless. We expect the strong demand for cell phones and emerging markets and growth in smart phone shipments will continue through the end of the year.

Our recurring royalties generated by growth driver such as these are recognized one quarter in arrears. As such, while overall macro conditions in our served markets are weakening, we believe the near term impact on our revenue will not be as pronounced as others. We continue to pursue the development and commercialization of our next generation packaging and interconnect technology, the µPILR platform. Specifically, we are focused on the optimization of this technology as an alternative to conventional Flip Chip.

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