Tessera Technologies, Inc (TSRA): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report
Tessera is a provider of back-end technology for semiconductor manufacturing. The company's third 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.
San Jose, California-based Tessera Technologies, Inc. (TSRA) licenses its proprietary advanced integrated circuit (IC) packaging technology to semiconductor manufacturers, assemblers and material suppliers. In 2013, the company generated revenue from two segments: Intellectual Property (89% revenue share) and Digital Optics (the remaining 11%).
Following a strategic review of its operations, management decided to do away with product manufacturing and focus instead on developing and licensing its technologies. As a result, 2013 revenue was derived entirely from royalties and licensing, whch included amounts generated from patent infringement settlements.
Intellectual Property revenues come from two operating subsidiaries: Tessera Inc and Invensas Corp. that focus on chipscale packaging, primarily for dynamic random access memory (DRAM) producers. DigitalOptics has been reduced to FotoNation Products, which are technologies for improving the appearance, such as face beautification and red eye removal.
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 the dissipation of thermal energy or heat from the die.
Tessera's advanced packaging technologies include chip-scale package (CSP) and multi-chip package (MCP). At 2013-end, the company's intellectual property (IP) portfolio consisted of 1,225 U.S. patents and patent applications (1,135 in 2012), as well as 919 foreign patents (713 in 2012).
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 technology 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 and interconnect technology is incorporated in a wide range of ICs with end product applications that include mobile computing and communications, memory and data storage, and 3DIC technologies. New markets with potential include automotive and security.
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. Revenue from Asian markets grew strongly in 2013 while the U.S. and Europe & Other declined. Specifically, Korea and Japan grew 48.9% and 112.2% respectively, with other Asian countries declining 64.2%. The U.S. and Europe & Other dropped 58.9% and 59.8%, respectively. The contribution by geography was Korea 37%, Japan 29%, the U.S. 25%, Other Asia 8% and Europe & Other 1%.
Given the nature of business, there is a certain amount of customer concentration. Tessera's top customers in 2013 were SK Hynix accounting for 26%, Sony Corp 18% and Samsung 11%.
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 the current DigitalOptics products ArcSoft and internal design groups of companies.
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