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Tessera Technologies Inc. Message Board

  • rumsfeld_rocks929 rumsfeld_rocks929 Oct 29, 2010 10:17 AM Flag

    B fof A/Merrill Notes

    Here is a summary of their report this morning:

    Wafer level optics discontinued, microelectronics gain
    Strong performance from the microelectronics business drove September
    revenue and December quarter revenue guidance above our/Street estimates.
    We estimate the company’s chip scale packaging business (CSP) will be up more
    than 20% Y/Y driving by strong semiconductor unit growth. Tessera also
    announced the strategic decision to exit the wafer level optics business as the
    desired returns were no longer feasible. While the remaining imaging and optics
    business should grow, the secular growth anticipated from optics is unlikely to
    materialize. This shifts the focus back to microelectronics, meaning the stock
    should trade on those semiconductor unit-related fundamentals.
    Mid-single digit growth for microelectronics next year
    When the DRAM pricing contract resets, we expect 2Q11 revenue will jump up
    $7-9M Q1/Q2. For the full year, however, we forecast microelectronics revenue
    will be up a modest 5-6%, slightly below semi industry unit growth. Imaging and
    Optics revenue is likely to grow at a fast pace, but the small base means more
    than 80% of next years revenue are forecast to come from microelectronics.
    Still lacking a catalyst, adjusting estimates and PO
    We expect Tessera to trade at a discount to the 14x CY2011 that pure
    semiconductor comps trade for due to the lumpy nature of the DRAM contracts
    and volatility associated with the legal-related outcomes. We apply an 11x
    multiple (20% haircut) on CY11E operating EPS of $1.10 and add back cash to
    give us a $21 price objective, up slightly from $20. Given the lack of upside or
    growth catalysts, we maintain our Neutral rating on TSRA.

    - Rummy

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    • Hey, Rummy - I no longer follow TSRA closely so I ask somewhat naively - what exactly does this mean that they are exiting wafer level optics? Does that mean the Shellcase acquisition is considered a bust? Isn't this statement a whole lot more than an aside? Though I probably am misinterpreting what this announcement means, I thought optics was considered TSRA's future. Is it only a part of their venture into optics they are exiting or is it the whole magilla? If optics is not now their future, what is? Continued reliance on being an attorney based business?

      • 1 Reply to foreverwhiteroses
      • Good to hear from you foreverwhite. My impression is that wafer level did not work out as planned and TSRA feels they can deploy resources in a more profitable manner.

        EDOF optics seems to be doing well and may be a profitable business for TSRA. It seems to me as though TSRA is transforming into more of a product based business. I don't know if that is because a product based model appears more profitable or if TSRA is worn down from all of the litigation in its license based model. At any rate, I can't believe that exiting the wafer level business is a good sign and I sold all of my option position the morning after the conference call (I had been in a 50% long option position in TSRA).

        The future for TSRA now seems to be in EDOF optics, thermal cooling, litigation and chip packaging for the next generation (if the TSRA device is accepted by the semiconductor manufacturers).

        Keep in mind that I have little knowledge about the technical aspects of TSRA and perhaps Jacosa or Carlos can provide some meaningful answers to your questions.

        Being hoplessly addicted to TSRA, I am sure that I will be involved in either a long or short postion in TSRA in the future, but for now I am content to sit on the sidelines for awhile and watch what develops.

        Good luck.

        - Rummy

    • I have to take issue with one part of the note. The analyst simply ignores the fact that at least one important legal decision is likely to be delivered by year end (the first CAFC appeal of an ITC decision was argued in the first quarter of this year). There's no reason to expect a decision to go for or against Tessera, but it ought to be mentioned.

 
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