Surprise, surprise: a small-cap chip company meets estimates, satisfies the street with its outlook, and sees its stock soar. $562 million (market cap) Tessera Technologies (TSRA) designs devices that attach chips to printed circuit boards and gets royalty payments for the use of those designs by others.
Tessera shares Tuesday morning were up $1.17, or 11%, at $11.77, on above-average volume.
The company last night reported Q4 sales of $69.1 million, up 30% year over year, in line with estimates, and profit of 41 cents per share, excluding some costs, which was ahead of the average estimate of 36 cents. For the current quarter ending in March, the company expects revenue of $54 to $58 million in sales, which is in line with the $58.66 million the Street’s modeling.
But more important, the Street seems to be licking its chops over several intellectual property suits the company has brought that hold out the prospect of a high-profit intellectual property business in years to come, rather than the low-margin chip-packaging business. A case of infringement brought against Amkor (AMKR), for example, received a judgment in Tessera’s favor on Jan. 14., which may yield Tessera a check for $64 million in damages come Feb. 15, the company said, combined with future royalties.
In that sense, the company’s ability to just about meet expectations means it can keep spending on legal to defend its royalty licensing business. In a note to clients Tuesday morning, Pacific Crest analyst Kevin Vassily, while marking down his estimate for this year’s profit from $1.12 to 70 cents per share, nevertheless emphasized the parts of the chip business that offer huge potential royalties: newer kinds of DRAM chips that will be the focus for new computers, and as many as 100 million cell phones that will rely on Tessera’s designs to attach the camera module to the phone.
Vassily rates the stock “Outperform” and has a price target of $38, which would be 19 times his 2010 EPS estimate of $2.02.
This can be a dangerous game, however: Tessera soared 17% in after-hours following that Jan. 14 ruling, only to give up the gains later in the week. Back in December, the stock was cut in half in a single day following an unfavorable ITC ruling.