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Analysis: Will Tessera's optics venture pay off?

Posted: 14 Oct 2009 ?? ?Print Version ?Bookmark and Share

Keywords:image sensor? Tessera optics IP? CMOS? DRAM?

Tessera Technologies Inc. has accomplished a rare feat: It is one of the few intellectual-property (IP) chip companies that is making money.

But many wonder if Tessera's luck will eventually run out. Still others ponder if the company will rebound from a false start in its new and fledging growth engine: imaging and optics. In this segment, it is taking a bold gamble by attempting to shake-up the CMOS image-sensor component/packaging supply chain, where OEMs are scrambling to cut costs for a new class of camera-based cellphones and smart phones.

Indeed, Tessera faces many challenges. The company's main IP businesschip-scale packaging (CSP)could see many of its existing contracts and patents expire in the distant future. It prevailed in a recent complaint with the U.S. International Trade Commission (ITC), but it remains unclear just how it will realize any payments in a complex case that has chip makers and OEMs reeling.

Realizing that it needed a new engine for growth, Tessera has embarked on a bold but little-understood strategy that could pay huge dividendsor may simply fall flat. Since 2005, it has acquired five separate companies in the imaging and optics arena. Call it Tessera's big gamble: It hopes to replicate success in DRAM IP, by assembling the pieces to boost the imaging quality and functionally for camera-based handsets, a market that is projected to grow from 987 million units in 2010 to 1.17 billion units in 2011, according to Barclays Capital.

But the company has already seen a slight setback for its Imaging and Optics division, which develops wafer-level packaging for CMOS image sensors, wafer-level optics for camera modules, smart optics technology and embedded image enhancement IP.

The unit also claims to have the industry's most viable 3D technology based on thru-silicon-via (TSV) technology. Also in the works is a silent air iconic cooling technology for notebook PCs and other products.

Citing a fall in capital equipment spending, the Imaging and Optics group is projected to exit the year with about $12 million in sales for 2009, significantly down from $23 million in sales last year, according to Barclays Capital. The forecast is down from projections earlier this year, when Barclays predicted that the group would realize $30 million sales for 2009.

In response, Tessera disagreed. Imaging and optics revenue are expected to be $31.7 million in 2009, according to Tessera. The $12 million figure cited is only for the "Products & Services portion of our Imaging & Optics business," the company said.

The group missed its forecast in other respects. At one time, the Imaging and Optics division projected that its sales would hit $100 million by 2010, said Hans Mosesmann, an analyst with Raymond James. Considered one of the company's "secrets for its long term success," the group has now pushed out those ambitious $100 million sales targets to 2011, Mosesmann said.

Clearly, Tessera "jumped the gun" in terms of its projections for the group, he said. "It may take time" before it generates significant revenue in that group.

One of the problems is a micro-optic lens technology, which is developed and sold for off-axis applications in semiconductor lithography tools, as well as other markets. The fab tool market has been horrible in 2009, which has impacted Tesserra's bottom line.

"This business was hit," said Mike Bereziuk, executive VP of the Imaging and Optics division. "It's recovering, but there's a long ways to go."

Bereziuk indicated that many of Tessera's IP licensees in the arena will shortly ramp their products, especially mass-market camera phones. In other words, the unit expects to see higher royalty streams in 2010, he said.

The ultimate goal of the fledging group is to provide the IP for a new class of camera-based handsets, based on "image capture and video" technologies, he told EE Times in a recent interview at the company's headquarters here.

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