QUOTE AND NEWS
Reuters  Nov 1  Comment 
* Tessera Technologies acquires technology assets from Pelican Imaging Corporation Source text for Eikon: Further company coverage:
Motley Fool  Sep 20  Comment 
Tessera scoops up DTS in a bid to expand its intellectual property portfolio.
Benzinga  Sep 20  Comment 
  Amphenol Corporation (NYSE: APH) shares reached a new 52-week high of $64.68. Goldman Sachs upgraded Amphenol from Neutral to Buy and raised the price target from $60.00 to $70.00. DTS Inc. (NASDAQ: DTSI) shares gained 23 percent to...
Reuters  Sep 20  Comment 
* Projected 2016 pro forma revenue of about $450 million for combined company
Forbes  Aug 16  Comment 
Looking at the universe of stocks we cover at Dividend Channel, on 8/18/16, Tessera Technologies Inc (NASD: TSRA), Symantec Corp. (NASD: SYMC), and West Corp. (NASD: WSTC) will all trade ex-dividend for their respective upcoming dividends. Tessera...




 
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San Jose, California-based Tessera Technologies, Inc. (TSRA) licenses its proprietary advanced integrated chip (IC) packaging technology to semiconductor manufacturers, assemblers and material suppliers. The company does not produce any semiconductors but rather licenses the use of propietary Intellectual Property (IP) associated with their packaging technology. At the end of 2004, the company's IP portfolio contained 344 patents with another 63 applications pending. The technology has been applied to semiconductors in the communications (wireless), consumer and computing end markets.

The semiconductor manufacturing process is composed of the front-end and back-end segments. 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. The net result is a silicon wafer that contains multiple copies of integrated circuit devices. Back-end processes involve the separation of the silicon wafer into multiple individual semiconductor IC devices, or dies, followed by the addition of electrical contacts, die packaging and final testing. Following the wafer sort, the wafer is cut or separated into individual die. Electrical leads are then attached to the die, which is followed by die encapsulation and packaging within an environmentally protective encasement. The purpose of the die package or encasement is to protect the semiconductor device from environmental elements and secure the electrical contacts to the protruding electrical leads. In addition, the encasement acts as a medium through which thermal energy or heat is dissipated from the die. The chips are usually mounted on a printed circuit board (PCB). The physical size of the die package is critical in some applications, as electronic designers attempt to reduce the total size of the end product (eg. cellular handsets). Additionally, larger die packages with correspondingly longer-length electrical leads could impair or degrade electrical performance, as chips increasingly operate at faster speeds.

Tessera's intellectual property (IP) is focussed on advanced packaging techniques that include chip-scale package (CSP) and multi-chip package (MCP) technologies. The CSP solution is much smaller than a typical package. It has shorter electrical leads and is not much larger than 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 Pyxis platform integrates RF-based semiconductors into a high-density RF package.TSRA'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. The company also provides prototype design, assembly-line consulting and related services.

Tessera derives revenue from licensing fees, royalty fees and services. The company reports revenue in three segments: Intellectual Property 54% of 2004 revenue (up 56%), Other Intellectual Property 28% (up 531%) and Product Development Services 18% (up 50%). The IP segment includes one-time start-up licensing fees and recurring royalty fees, based on production volumes and chip pin counts of the licensee. The company also earns revenue through license negotiations or the resolution of patent disputes, insofar as such payments include amounts for royalties and fees related to previous periods.

This revenue is designated as Other IP revenue. This revenue stream fluctuates substantially from quarter-to-quarter, since some type of litigation action is almost always associated with the process. The size and timing of settlements are nearly impossible to forecast.


Internally, the organization has been divided into three groups, Advanced Semiconductor Packaging Group, Product Miniaturization Group and Emerging Markets & Technology Group. The Advanced Semiconductor Packaging Group focuses on the current revenue producing core IP licensing business, lending support to customers in the technology transfer process. This group is focused on furthering technology development in the core DRAM (dynamic random access memory) and DSP (digital signal processing) markets, along with several adjacent markets. The Product Miniaturization Group is the product development arm of the current core business. Currently, the group is focused on advancing and developing new methods for the miniaturization of electronic devices. The newly formed Emerging Markets & Technology Group develops technology that will expand the current IP portfolio into areas outside the current core market. The group hopes to penetrate new markets, internally develop new technologies with new applications and acquire or partner with companies that have complementary technologies.

The Strategy

The company's strategy is to collect royalties on more than 80% of the packaged chips manufactured using Tessera's Technology (TSRA now collects from approximately 60% now). This is made up of two elements, the ongoing license program and the company's enforcement efforts. TSRA's Licensing program has been extremely successful. In the past four years 15 major semiconductor manufacturers have agreed to pay royalties to Tessera, including 5 of the top 6 IT manufacturers in the world.

Licensing

The technology is currently licensed to more than 50 semiconductor manufacturing, semiconductor assembly and semiconductor material companies. Tesera's technologies have been incorporated in 1.5 billion semiconductor units during 2004. Five of the top six semiconductor manufacturers are customers. Licensees include major semiconductor manufacturers, such as Intel, Texas Instruments, Samsung, NEC, Hynix, Hitachi, Matsushita, Panasonic, Sony and Toshiba, as well as semiconductor assemblers such as ASE, STATS ChipPAC and Amkor. Texas Instruments accounts for 20% of total revenues, Intel 18%, Samsung 9% and NEC 6%. Approximately 56% of its revenue was generated in the U.S., Japan contributed 31%, Korea 9%, Taiwan 1% and Others 2%.

Gartner Dataquest, an industry research group, estimates that the chip-scale packaging (CSP) market is expected to grow from 11.2 billion units in 2004 to 23.4 billion in 2007, at a compound annual growth rate (CAGR) of 28%. The fastest growing subsegment of the CSP market is forecasted to be the DRAM area, with a CAGR of 60%. Competition is intense in the cell phone, PDA, laptop and gaming platform markets, where new and improved features and smaller footprints are the key. This is propelling demand for CSPs, which helps reduce package sizes of electronics operating at greater speeds. It is this feature of the CSP that has made it the choice for the next generation Double Data Rate2 (DDR2) DRAM. Tessera's patents legally cover the technology required for DDR2, based on prior judicial rulings. The DRAM market presents a big opportunity, as this market has already begun the transition from DDR1 to DDR2. Management expects that 38% of the DRAM market will convert over to DDR2 by the end of 2005 and Gartner forecasts a penetration rate of 75% by 2007.

Enforcement

Two key recent licensing events involving Samsung and Hynix, hold great potential for the company. These two companies together hold almost a 50% share of the DRAM market. Samsung has recently reduced penetration projections and was partially responsible for some of the pressure put on TSRA shares. However, the current Samsung projections are consistent with consensus industry forecasts that management had used in developing revenue projections.


The real wild card for the company this year has been answered recently with the sucsessful outcomes of the patent infringment lawsuit and the antitrust claims lodged against Infineon and Micron Technology. These companies combined have a 30% share of the DRAM market.

The Micron deal, which settles all outstanding litigation between the companies, calls for Micron to pay a license fee of $30 million to get access to Tessera's patented chip packaging technology. Tessera will book the revenue in the third quarter.

On August 1 2006, TSRA settled with German microchip maker Infineon Technologies AG and its memory chip unit Qimonda AG. Under the deal, Infineon will pay $10 million and Qimonda will pay $40 million in the fourth quarter of 2006 for the right to use several Tessera patents covering the packaging of integrated circuits.

The General Counsel pointed out that these are the same patents that were earlier infringed upon by Samsung, Texas Instruments and Sharp. The infringement resulted in legal action being brought against all three companies. The outcome of the litagation were licensing agreements with Samsung and TI, and a fee paid by Sharp. We estimate that Samsung paid $6 million and Sharp paid $4 million. In the Infineon and Micron patent dispute, damages are restricted to actual fees associated with the chips that incorporate the disputed technology.

The company has dominated in the legal arena winning five major cases. It also has new suits with Amkor, Stats ChipPAC, ST Micro and Spansion which could bring $50-70 million in one time settlements and $40-50 million in ongoing revenue.

The company added NXP (which was formerly known as Phillips Semiconductor) to its royalty customers for chip-scale packaging (CSP). This adds to its penetration in the wireless market. We feel it is a significant signing since the deal was not signed as the result of a lawsuit.


Generically, the licensing business model has inherent advantages such as a low overhead structure, limited capital investment requirements, very high margins and strong cash flows. On the flip side, this requires the maintainance of a technologically advanced IP portfolio and its protection from infringement, which could be very complex in a global economy with countries that don't recoginize or actively enforce IP rights.

There are risks associated with an investment in Tessera. Tessera operates in the highly competitive semiconductor industry and is pitted against much larger players like Texas Instruments, Fujitsu, IBM, Motorola, Sharp and Samsung. These rival companies have considerable resources devoted to the research and development of competitive technologies. Also, some semiconductor assembly and test (SAT) providers have developed alternative packaging technology. While the firm has previously defended its patents successfully, there is no assurance that it will continue to do so in the future. China is emerging as the largest consumer of CSPs. Since the protection of intellectual property has been a challenge in that country, giving local SAT providers the license increases patent infringement risks.

The Next Growth Leg

On January 31, 2007 Tessera Technologies Inc., announced it will buy microtechnology company Eyesquad for about $18 million in cash. The Israel-based Eyesquad develops digital auto-focus and optical zooms for camera phones among other products. Tessera said the acquisition would expand its business in the consumer optics market. Under terms of the offer, Tessera said it will make a cash payment of $20 million to Eyesquad. Following the deals expected close in the first quarter, Tessera would receive about $2 million in cash from Eyesquad's balance sheet.

According to market research firm Prismark, the market for electronics which include cameras, such as camera phones, notebooks, security and automotive electronics, will increase to approximately 1.7 billion units in 2010. This could be a 100 million a year business by 2010.




References

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