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Tessera Issues 2Q Guidance

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Chip technology developer Tessera Technologies Inc. has provided its guidance for the second quarter ending June 30, 2012.

Tessera expects revenue in the range of $59.0 million to $60.0 million, up 26% to 29% from the prior quarter. The guidance was above the analysts’ estimate of $58.7 million, according to Thomson Reuters.

Revenue from the Intellectual Property segment is expected to be $50.5–$51.0 billion, including one-time payments of approximately $8.0 million, unit volumes from certain DRAM licensees and volumes from the renewal of one major DRAM contract. DigitalOptics segment revenue is expected to be $8.5–$9.0 million, comprising royalties and license fees of approximately $5.0 million, and products and services revenue of $3.5 million to $4.0 million.

Tessera remains optimistic about the revenue coming from the renewal of licensing contracts as it has been scoring legal wins in recent times, and expects other big companies to renew their licenses going forward. In the last quarter, Tessera obtained 4 new licenses, two of which were by important Japanese licenses.

Even in digital optics, Tessera has been seeing some success with its new MEMS lens subassembly. The segment has transitioned from an imaging and optics focus to an ODM of camera modules for the mobile phone market. 

However, we find the revenue guidance a little aggressive as the company has not posted any revenue growth in the past four quarters. Tessera’s first quarter revenue was down both sequentially and year over year, hurt by the non-renewal of major licenses. Additionally, the company is entangled in various lawsuits with big customers, such as Amkor Technology Inc. (AMKR - Free Report) and Powertech, where positive outcomes are not ensured.

Other guidelines include non-GAAP operating expenses of $44.0–$45.0 million and GAAP operating expenses $56.0-$57 million, including stock-based compensation of $5.7 million and amortization expense of $6.3 million. The litigation expense is expected to be significantly higher than the $3.5 million reported in the first quarter.

However, the company has a strong balance sheet, with $490.4 million in cash and short-term investments and no debt. The company’s financial strength allows it to invest in attractive growth opportunities through the economic cycle.

Very recently, the company signed an agreement with Singapore-based Flextronics International Ltd. (FLEX - Free Report) to buy certain assets of its Vista Point Technologies, a tier-one qualified camera module manufacturing business. The company is expected to continue to invest in companies that will boost its long-term earnings power while providing attractive returns to shareholders.

In March, Tessera announced that it will start paying a quarterly cash dividend of 10 cents per share, to shareholders of record on May 24, with the first payment due on June 14. The initiation of a quarterly dividend indicates that the company has sufficient capital resources for the near term and is confident about its long-term growth prospects.

Tessera’s various legal entanglements and pricing pressures in the DRAM market remain overhangs, keeping the Zacks Rank on Tessera shares at #4, implying a Sell recommendation over the next 1–3 months.

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