Tessera Technologies, Inc. (TSRA) is one of Lee Kronzon’s favorite investment ideas. A Portfolio Manager at Gator Capital Management, Mr. Kronzon says Tessera has many appealing features and exemplifies what he looks for in an investment.
“Tessera focuses primarily on semiconductor packaging and image-processing solutions. For example, Tessera provides the red-eye removal technology that you see in digital still cameras and smartphone camera features for image processing,” Kronzon said. “Tessera has over 20 years of leadership in I.P. development with over 3,700 issued and pending patents.”
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Kronzon says Tessera is now moving into the auto and security electronics markets. The company has excellent revenue visibility and a recurring revenue base, he says, as well as 100% gross margin because its licensing revenue requires no physical production.
“The key point is that Tessera probably can deliver pretax operating margins in the 58% to 66% range this year. So for every incremental dollar of sales, they can generate over 58% in pretax operating margin, which is very positive for earnings and cash flows,” Kronzon said.
“I think Tessera is attractively priced given its healthy growth prospects, high margins, recurring revenues and high returns on capital of around 25%,” Kronzon added.
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