The recent Cisco Systems (CSCO) earnings report included very "worried" guidance about the near term future of its marketplace. CSCO's statements have taken many technology companies to the woodshed. Many may deserve to be there. Tessera Technologies Inc. (TSRA) may be one of the most deserving of punishment. In its Q1 2012 report it showed a loss of -$0.16 per share on a GAAP basis. Its net margin was -17.3%. This was after losing money for FY2011 on a GAAP basis. CSCO's view on the overall outlook for technology sales for the next year or so makes one wonder if TSRA has any chance at all to reverse its recent results. When you take into account that CSCO not long ago closed down its Flip Camera business as unprofitable, it makes you further wonder whether TSRA can turn around its DigitalOptics business. In Q1 2012 TSRA's Digital Optics business had total revenue of $7.7 million. This was down almost 50% from the $14.2 million in revenue it generated in Q1 2011. Not many businesses can sustain such dramatic slides. At best it is a very ill omen of things to come.
TSRA even on an adjusted earnings basis missed in Q1 2012. On that basis the average analysts' forecast for Q2 EPS is still positive. However, the EPS estimate for Q2 has halved itself from $0.28 to $0.14 within the last three months. The estimates for other quarters and for FY2012 and FY2013 have gone down significantly too over the last three months. The EU recession, which is almost certain to be declared official in the next couple of weeks, is bound to depress TSRA's markets further. Now many are talking about a recession in Japan again -- another of the world's largest economies. They are talking about a possible recession in the US and a hard landing in China. In this environment it is hard to imagine TSRA making a big comeback in the DigitalOptics business. Rather if the CSCO example is any indication, TSRA may end up having to close this business. If the CSCO outlook is any indication, TSRA may have a hard time being profitable at all in FY2012. This might ensure a closure of its DigitalOptics business.
Unfortunately for TSRA its other business, its Intellectual Property revenue, fell dramatically in Q1 2012 from the year ago quarter ($39.0 million from $53.6 million). This does not augur well for the prospects of TSRA. Plus what company can really exist long term on its Intellectual Property business alone? If it does not have other thriving businesses, it does not tend to develop further new intellectual property. Its old intellectual property eventually becomes old, outmoded technology. Its entire revenue stream dries up. TSRA did have cash equivalents and investments of $490.4 million as of March 31, 2012. However, this will not last long if it continues its losing ways. It lost -$19,300,000 in FY2011. TSRA needs to have something more than a few high IQ's to offer its investors. Based on its most recent results it is a SELL. Based on the CSCO outlook and the CSCO experience with its Flip Camera division, it is a short for aggressive traders.
The two year chart of TSRA may lend some technical direction to a trade.
I apologize for the lack of a chart here. I was unable to upload the image due to some technical glitch. However, you can duplicate what I have described by looking at a Yahoo Finance chart of TSRA.
The slow stochastic sub chart shows that TSRA is over sold. One might expect this of a weak stock in a recently down overall market. The main chart shows that TSRA is in a down trend. The TSRA price line has already penetrated the 200-day SMA. The 50-day SMA line is headed toward the 200-day SMA from above it. This is a sell signal. It appears you should be able to sell TSRA short at its current $15.53 for a decent profit. There is no major support from there until TSRA reaches $11.27. I am not saying the company will not go lower. It may well do so. In fact without a significant break through in its business model, one might expect it to. However, the $11.27 level will likely be the "easy profits" level for a short position. I am always hesitant to go beyond the "easy profits" level on shorts because there is always a chance for an upward "shock". Plus the $490.43M in cash amounts to $9.45 per share. I would be hesitant to closely approach this level. When you consider that it could probably sell its intellectual property, the $11.27 "easy money" bottom seems like a very reasonably figure. Still without good prospects for a major turn around, TSRA is dead money at risk of becoming "no money". It is a sell for most, and it is a short for aggressive traders. Much of the fundamental data above came from Yahoo Finance.
Good Luck Trading.