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Tessera cuts losses, shuts China fab

22 Mar 2013

DigitalOptics subsidiary to stop making lenses for camera modules and focus efforts on MEMS technology development.

Tessera Technologies’ DigitalOptics Corporation (DOC) subsidiary is to stop making camera modules, and close down its Chinese facility where the devices are produced.

The decision follows a review of the company’s business strategy by its independent directors, and comes just a year after Tessera acquired the Zhuhai site that it now plans to close from Flextronics in a $23 million deal.

In another apparent strategic reversal, DOC will now focus more of its efforts on the development of intellectual property, and in particular MEMS-based technologies. In 2010, Tessera had reorganized the business after what it described as the failure of its licensing strategy in wafer-level optics to deliver sufficient financial results.

The latest moves are expected to cut DOC’s capital spending by around half in 2013, to between $5 million and $7 million – although the strategic changes will initially cost the company around $20 million in restructuring and impaired asset charges.

“Our board is taking action to deliver value for our stockholders in both the near and long term,” said independent director Richard Hill, previously the CEO of Novellus Systems. “DOC’s recently launched ‘mems|cam’ technology [sic] is a disruptive technology that will be an inflection point in – and the future of – imaging solutions in the smartphone, tablet and other mobile imaging segments.”

He added: “Given the emerging acceptance of the mems|cam technology in the marketplace, we can now shift our strategy to focus on the areas of manufacturing where we have a defensible, differentiated advantage and better leverage our manufacturing partners. Our goal is to accelerate the success of DOC while reducing costs, which we expect to improve the overall financial performance of [Tessera].”

Cutting costs
John Thode, the recently installed president of the DOC business, stressed that the action will dramatically cut the capital-intensive nature of the existing DOC business, enabling it to focus on innovation and product development.

“Our mems|cam module has demonstrated significantly faster autofocus and lower power consumption than the current voice coil motor autofocus technology,” Thode said in a Tessera statement. “The actions we are taking today will help to ensure our long-term competitive viability and a meaningful success in our business in 2014 and beyond.”

While the radical restructuring will cut DOC’s annual expenses by several tens of millions of dollars, the company’s “Intellectual Property” business segment, which is focused on electronic chip packaging, will not be affected.

Some of the specific actions identified in the new strategy include accelerating the use of partner manufacturers for the production of camera modules. DOC will instead focus its own manufacturing activity on the lens barrel assembly, which it says is a higher-margin component based on proprietary technology.

As a result, the company will consolidate manufacturing within its Taiwan facility and will shut down operations in Zhuhai after transferring some equipment to Taiwan.

The company will also terminate its lens manufacturing program and will instead focus on designing lenses that its partners can produce for use inside DOC’s proprietary assembly technology.

Tessera’s latest financial results had laid bare the tough choices facing the DOC business unit. In 2012, it posted an operating loss of $88.5 million on revenues of only $41.1 million. But it believes that its MEMS technology will be a “game-changer” in the smart phone market thanks to faster focusing (200 milliseconds) performance and a much-reduced energy consumption (1% of standard camera modules).

The company says that it shipped evaluation or qualification samples to three smart phone makers in the closing quarter of last year, and launched the “mems|cam” brand a month ago, in time for the giant Mobile World Congress exhibition in Barcelona.

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