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Tessera Issues 4Q Guidance

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Chip technology developer Tessera Technologies Inc. has provided its guidance for the fourth quarter ending December 31, 2012.

Tessera expects revenues in the range of $50.0 million to $53.0 million, down 41.2% sequentially. Revenue from the Intellectual Property segment is projected to be $42.0–$43.0 billion, which includes roughly $25.0 million received from past production payments.

The DigitalOptics segment revenue is expected to be $8.0–$10.0 million, comprising royalties and license fees of $2.0 to $3.0 million, and products and services revenue of $6.0 million to $7.0 million.

Tessera’s Intellectual Property continued to generate the bulk of its revenue in the third quarter due to renewal of contracts by two DRAM customers. But still, the company expects this business to gradually become a smaller part of its revenue due to the significant litigation expenses that it has been occurring in the past

On the DigitalOptics side, Tessera has been seeing some success with its new MEMS lens subassembly. The segment has now transitioned from an imaging and optics focus to an original design manufacturer (ODM) of camera modules for the mobile phone market. In the third quarter, DigitalOptics posted strong results, benefitting from the shipment of the company’s first camera modules from the recently-acquired facility in Zhuhai, China.

Other guidance included non-GAAP operating expenses of $51.0–$53.0 million and GAAP operating expenses of $61.0–$65.0 million, including stock-based compensation in the range of $4.0 to $5.0 million and amortization expense of $6.0 to $7.0 million.

Both GAAP and non-GAAP operating expenses guidance exclude litigation expenses and re-structuring charges of $4.0-$5.0 million that the Company expects to incur in the fourth quarter.

Tessera is a provider of back-end technology for semiconductor manufacturing. The company posted decent third quarter results; with earnings of 5 cents beating the Zacks Consensus Estimate by 3 cents. Revenues of $72.7 million jumped both sequentially as well as from the year-ago quarter. Tessera has a strong balance sheet, with $465.9 million in cash and short-term investments and no debt.

Recently, the company has taken steps to restructure its DigitalOptics segment by reducing its workforce by up to 40%. The company also plans to shut down operations at its facility in Tel Aviv, Israel, and to pursue a possible sale of, or, other strategic alternatives for its facility in Charlotte, North Carolina. The company is planning such measures to refocus the business toward a lower-margin, but safer product-oriented model that involves camera modules for mobile devices.

Tessera’s financial strength allows it to invest in attractive growth opportunities through the economic cycle. The company is likely to report its fourth-quarter results on February 7, 2013.

Currently, Tessera has a Zacks #3 Rank (Hold). Its rival, Advanced Semiconductor Engineering Inc. (ASX - Free Report) also carries a Zacks #3 Rank (Hold).

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