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The Company is a developer and licensor of miniaturization technologies for the electronics industry.
So why do I like this business?There is the short answer and there is the long answer.The short answer is – This is a nicely growing business with no debt and about 550 Millions in Cash, making more than 50 Millions a year, and selling for 800 Millions.The long answer is, it is more appropriate to look at this business as two different businesses, the Micro-Electronics segment, and the Imaging & Optics segment. We will consider each with assets of about 300 millions. The Micro-Electronics segments is a thriving business. It’s revenues of about 250 M’s, are almost entirely from royalties on its hundreds of patents, regarding the building of micro-electronic chips, present virtually in every computer, smart phone, or tablet in the (growing) market, both in and out of the US.It makes about 150 M a year (operating income) or 100 M Net Income. It continues to develop new technologies for miniature chip packaging, and is likely to continue growing.It has some litigation issues, which, frankly, I understand nothing in. But I do understand that litigation are an inherent part of the intellectual property business, and I have no reason to assume it is going to lose half it’s income.So, I would say this business is worth about 1.5 Billion.The Imaging & Optics business is a start-up company developing technologies mainly for camera-phones. It already has a moderate income of about 30M a year, but it spends a lot (perhaps too much ?) on R&D, resulting in a net loss of about 50 M a year.Now, you may like this start-up company, or you may not like it. It is hard to put a price-tag on it, but I can tell you it ain’t minus one billion… So combine the two businesses together for a price of 800 M, and you have got yourself an excellent deal.
Even Intel has "Tessera Inside".or has a license agreement and you haven't seen anything yet if I am not mistaken. That expensive R&D is paying off pretty well I think.
Unfortunately, I believe that all those with a positive outlook are choosing to not look at the details and are getting too excited about the cash balance.Here are some facts worth looking into that I believe will change your outlook from positive to negative.A) They bought a factory in June / July of last year with a monthly capacity of 4 million units. In their Q4 results they did revenues of 4M$. At say $10.00 per unit, that's 400ku for the quarter or 133ku/ month. A very underutilized facility, ie: one that is losing money.B) in their earnings call they mentioned they are sampling at 3 customers. So production is at least 18 months away and may not be suuficient to fill the factory.C) Their manufacturing business will continue to drain the balance sheet for at least another two years.The IP side seems to be doing well but the stock can only perform if the activist shareholders are allowed to do what's good for us shareholders by replacing the board.
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