Xperi (XPER)

[NukeJohn]

Tessera's Wireless Cases are back on track

Now that the Supreme Court has denied the appeal of Qualcomm, Freescale, Spansion, ST Micro and AMD/ATI, the ITC ruling of infringement that was upheld by the CAFC is now final. These companies all owe Tessera a huge amount in past damages. The District Court Cases have now all been consolidated under Judge Claudia Wilkens in the Northern District of CA and she has started them back up. In this specific case, the two key patents recently expired, so all is at stake in the federal district court cases are related to past damages.

Tessera may move for summary judgement of both validity and infringement on the patents, which will likely be granted by the court since this has already been determined by the CAFC and the appeal was denied at the Supreme Court. The only thing left after the court grants the summary judgement motions would be for a jury to be selected and determine amount of damages (of course discovery on damages and the whole jury trial takes a lot of time). But, I doubt most of these defendants will let it go that far...so there should be some new licensing deals on the horizon for Tessera with these five major wireless chip providers.

If I were Qualcomm, Spansion, ST Micro, Freescale or AMD/ATI (the defendants against TSRA), I wouldn't feel real good about this situation, especially considering that the ITC set the 60 day Presidential Appeal Bond at 3.5% (saying this was typical in the electronics industry). One should note that TSRA does have tons of other patents that have not expired (including the xFD patents needed for wireless chips), so they may use the threat of huge past damages to work out a deal for future licensing. Past damages really don't get a multiple from the market, but future revenue streams should have a multiple similar to the PE multiple.

Tessera currently has about $11/share in cash with no debt and they just renewed their licenses with Samsung and Hynix (Micron is still pending). At a stock price of $19/share...with a great positive cash flow and a $9 Billion dollar camera phone market sitting out there as a cherry for them to pick with their MEMS patents....this stock is grossly undervalued. For example, someone like QCOM could buy them, sell off their Imaging and Optics Division (or simply close it and just sell off the patents), and make a fortune. But I'm sure Tessera is looking to monetize the MEMS patents, and would prefer not to sell. Here's Tessera's latest corporate presentation. Pay close attention to slide 9 and 18-24.

http://www.tessera.com/Documents/TSRA%20January%202012%20PPT.pdf


If TSRA is forced to go through with the patent damages case (QCOM et. al. refuse to settle), then I think TSRA would recover a huge amount from these defendants in past damages. Tessera has newer patents that these guys need (like the xFD patents), so I think something will be worked out ...one way or another.

In any event, TSRA is grossly undervalued at current levels. I would think a conservative year end price target should be $35 - 40 and they should move on up into the low to mid twenties over the next couple of months as they announce design wins on the MEMS patents for cell phone cameras. The MEMS patents are a disruptive technology that will start generating revenue in the second half of the year. Tessera's Silent Air Cooling technology should be showing up soon in real products (nobody knows who yet, but my guess is Apple).

All in all, this company bears watching as it appears they have finally caught a tailwind.

JMHO,

NJ