(TSRA) Tessera Technologies – Bear of the Day

Tessera Technologies, Inc. (TSRA) is a provider of back-end technology for semiconductor manufacturing. Its technology enables miniaturization of electronic goods, which is a driver of IC sales in the market today. However, protection of intellectual property (IP) for a company this small is a challenge, as are the inherent pricing pressures in the sluggish DRAM market.

Tessera’s near-term revenues are at risk. First, Micron, a major customer, was due to renew its license in May this year, but there is still no news that this has in fact been done. Tessera is also in legal battles with other big customers, such as Amkor and Powertech.

Additionally, the shares are trading at a significant premium (115.4%) to the peer group based on our estimates for 2013, while historically, the maximum premium has been just 13.5%. Therefore, despite the significantly higher earnings power, we consider investment in the shares risky. We therefore have an Underperform rating on TSRA shares, supported by a target price of $13.00 (37.1X P/E based on 2013 earnings estimate).

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