Tessera Tech Gets on the Map (TSRA, QCOM, MOT, AMD)

Tessera Technologies, Inc. (NASDAQ: TSRA) is not one of the most common names in the land of chip stocks, but that may be about to change as it won a patent fight against some key chip companies.  Late Wednesday, the company announced that the International Trade Commission issued a final determination against certain wireless manufacturers finding Tessera’s asserted patents are valid and infringed.

The commission also issued a cease-and-desist order against Motorola (NYSE: MOT), Qualcomm (NASDAQ: QCOM), Freescale, and Spansion.  This cease and desist from the ITC directed these companies to stop selling infringing articles out of their US inventories.  Tessera also noted that ATI Technologies of Advanced Micro Devices (NYSE: AMD) was also one of the respondents.  It looks like Qualcomm has already shifted chip supplies to another licensed party.  Workarounds in these cases are not unusual, and they can sometimes do nothing to alter or change verdicts.

What makes Tessera important is that its operations and licensing are for miniaturization technologies in wireless, consumer and computing products. Its packaging and interconnect solutions enable smaller and higher-functionality electronic devices.  The imaging and optics solutions provide low-cost and high-quality camera functionality.  In short, it helps to make all of the electronics in your tech gadgets and gizmos smaller and therefore more efficient.

It is important to know that an ITC  ruling is not the final victory.  There is an appeals process and these cases can drag on and on for years.  Ask Qualcomm and Broadcom how long patent infringement cases can go on.

Tessera is somewhat thinly followed by analysts.  Before this ruling, they were also looking for no solid growth from 2008’s $248.3 million in revenues.  Estimates from Thomson Reuters are $276.7 million in 2009 and only $255.7 million in 2010.  Earnings for 2009 are projected to be $1.10 EPS and for 2010 they are projected to be $1.04 EPS.  It is possible that this is all about to change for the better, but the appeals process and the coming months could end up having no real effect on that depending on what gets filed and what happens in the coming months.

Tessera is also well financed for a chip and technology design licensing firm.  As of March 31, it had over $380 million in cash, equivalents, and investments.  It has virtually no real long-term debt and all of its liabilities came to $80.25 million.

Again, this is no a slam dunk.  Some patent infringements are reversed and some are settled.  Calculating the exact damages and what royalties could apply down the road is premature at this point.  That is doubly the case when you consider that there is no assurance that Tessera will collect on this matter.

Here is more detailed data from the company’s Legal Newsroom.  There is suddenly much more work and research that needs to be conducted on this stock.

After a 24% gain to $20.54 this morning, the company’s market cap looks to be about $1 billion.  Its 52-week trading range is $8.33 to $24.84.

JON C. OGG
May 21, 2009