Investment Conclusion We continue to see shares grinding gradually higher on solid Microelectronics fundamentals, an attractive longer-term outlook for the Imaging & Optics segment, and attractive valuation (9x/5x our CY10/CY11 EPS ex net cash of $9 per share). Summary TSRA reported results that were largely inline. 2Q revs of $74.6M were inline with the pre-announced $74-75M range, while EPS of $0.30 came in above cons driven by lower litigation/ R&D. Guidance for 3Q for revs of $79-82M were in line with our ests of $81Mand cons of $80M, as the $6M UTAC payment, initial EDOF licensing ramp, and underlying microelectronics units strength gets partially offset by DRAM volume discounts filtering into 3Q. Mgmt officially backed away from prior hard-coded Imaging & Optics goal of $100M in 2011, though we believe this has been largely factored into expecations. This said, traction continues on the IP side and TSRA is making steps in the direction of product-based revenues through the Siimpel acquisition. We maintain our CY10 ests of $293M/$1.05 (cons $292M/$1.02) and CY11 ests of $330M/$
Lets analize the analysts: 2 years ago they would have gone crazy for a Q like tsra's one. It doesn't matter they have nearly 9 in cash, it doesn't matter they will close with more than one buck of eps. I don't relaly understand what these people are looking for. We all know that the business is growing and we do know that there's been some contract signed whose money won't arrive until 3 rd of 4th q in the company's pocket. the only negative scenario is the DRAM case. I do believe that also the image and camera business will grow quickly as at a certain point there will be a strong leverage effect once the products gets known. I'm really feeling comfortable in keeping my money here.
Ok, my 2 short-term negatives were addressed in the call, which is better than ignoring them, but don't think it draws ALL the poison: the volume discounts will kick in earlier than ever this year, and management is abandoning its $100MM optical in 2011 PROMISE.
There are a few new stories around this story-rich stock. We've pretty-much been promised a laptop with silent air cooling within 9 months. That'll be nice. On the other hand, there was obvious if unstated frustration about lack of interest for pocket devices. Ah, well, expectations on money from this technology have been managed down all year. Disappointingly slow ramp-up in use of very-high-density packaging technology was laid to a slower tech race in pocket devices. That fits with observations from some tech mavens: Mr Jobs, bless his little heart (and liver) has made the hot competitive area design rather than performance...for a little while, anyway (see the famous "I need an iPhone video). It sure sounded like real, material [new] optical PRODUCT (rather than royalty) earnings were being dangled in front of us for within the year. And many of us legal innocents are gettin a lesson in just how long appeals and arbitrations can drag on [see Dickens' "Bleak House," or look at the history of the IBM anti-trust action)
Taken as a whole, a nice quarter and CC; ought to set TSRA's 'resting price' most of a buck higher; we'll need more catalyst for really big gains.
gio, I think that you are spot on in your analysis. It was noteworthy that none of the major firms had a senior analyst on the call. TSRA is somewhat of a forgotten stock. I think that the problem is that it is so hard to value TSRA (transformation into optics and thermal imaging, expiring patents, litigation uncertainties and new CSP technologies) that the analysts have placed TSRA on the back shelf.
Microelectronics stays strong in September… Tessera reported June quarter results roughly in-line with their preannouncement. September guidance of sequential top line growth of 6-10% was slightly below our/Street consensus due to an earlier than expected kick in of the volume-related DRAM price breaks, but the underlying DRAM and wireless semiconductor unit trend driving revenue remains strong. As the semiconductor unit volumes improve, TSRA should see similar underlying license revenue growth, ex-DRAM contracts. … but optics visibility still hazy… TSRA continues to build its Imaging and Optics (I&O) intellectual property portfolio, having closed the Siimpel acquisition during the June quarter. However visibility into when the revenues will accelerate and which products or licenses will drive the ramp remains unclear. With the bar lowered for revenues from the newer I&O IP and expectations reset, we view any pick up over the medium term as upside to our estimates. …and still lacking a catalyst, adjusting estimates and PO With Microelectronics revenue strengthening but I&O uncertain, we expect TSRA stock to trade at a discount to the 14x CY2011E that pure semiconductor comps trade for due to the lumpy nature of the DRAM contracts and volatility associated legal-related expenses and outcomes. We apply an 11x multiple (20% haircut) on CY11E operating EPS of $1.05 and adding back cash to give us our $20 price objective. Given the lack of upside or growth catalysts, we remain on the sidelines on TSRA.