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Tessera restructures DigitalOptics business strategy

Posted: 25 Mar 2013 ?? ?Print Version ?Bookmark and Share

Keywords:MEMS? camera module? restructuring?

Tessera Technologies Inc. has revealed that it is refocusing its DigitalOptics Corp. (DOC) business strategy to achieve the full potential of its differentiated imaging technology while reducing costs. The company expects to reduce operating expenses in DOC and corporate overhead by about $78 million, or 45 per cent, on an annualized basis exiting 2013, as compared last year, Tessera indicated.

The company has determined that it is no longer necessary for DOC to be a vertically integrated camera module supplier. DOC will instead focus its strategy on the differentiated MEMS-related technologies, where it has proprietary assembly technology and expertise, and will partner with third-party manufacturers to produce other components of the full camera module. DOC will continue to productise the mems|cam technology throughout the rest of the year, and expects to ship small production volumes of its technology in 2013.

The company's restructuring will reduce spending in DOC and corporate overhead, but not in the company's IP business. As a result of DOC's refocused business strategy and previously announced cost reductions, the company expects its reported corporate overhead to be at an annual run rate of nearly $29 million exiting 2013, compared to $47 million in 2012; and DOC operating expenses, excluding cost of revenues and restructuring, impairment and other charges, to be at an annual run rate of about $53 million exiting 2013, compared to $88 million in 2012. These reductions will occur throughout the rest of this calendar year. DOC also expects cost of revenues to decline from $40 million in 2012 to around $15 million in 2013 as a result of the change in estimated production volumes and previously announced actions.

DOC will accelerate the use of partner manufacturers for the production of camera modules and will focus its own manufacturing on the lens barrel assembly, which is a higher-margin component for which DOC has unique proprietary technology. This approach will cut DOC's expected capital spending in 2013 by roughly halfto a range of between $5 million and $7 million, as compared to the company's previous estimate of $10 million to $15 million.

In addition, DOC is consolidating its manufacturing capabilities into its Taiwan facility and expects to cease all operations at its leased facility in Zhuhai, China. DOC will transfer a portion of the manufacturing equipment located there to Taiwan. Lastly, DOC will terminate its lens manufacturing programme and instead will focus on designing lenses that its partners can produce for use in DOC's proprietary assembly technology.

Tessera expects to take a total charge of between $17 million and $23 million, which includes restructuring, impairment of assets and other related exit costs, with the majority taken in 1Q13 and the remainder in 2Q13.

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