|By Business Wire||
|May 6, 2013 07:05 AM EDT||
Tessera Technologies, Inc. (NASDAQ:TSRA) ("Tessera" or the "Company") today issued a letter to stockholders in connection with the Company’s 2013 Annual Meeting scheduled on May 23, 2013. In the letter, Tessera explains the merits of its intellectual property (“IP”) business model. The Company provides a detailed rationale why the core elements of its IP strategy will generate a higher value for stockholders versus the flawed plan proposed by dissident stockholder Starboard Value LP (“Starboard”).
“It is clear there are two distinctly different strategies to choose from in monetizing IP, Tessera’s or Starboard’s,” said Richard S. Hill, interim CEO and executive chairman of Tessera Technologies, Inc. “Starboard’s strategy can best be analogized to cutting down the apple tree to harvest the apples. In the Tessera model, our engineers constantly enrich our patent portfolios. We harvest the apples while continuing to nourish the tree.”
The full text of the May 6 letter follows:
Dear Tessera Stockholders:
I write this letter to impress upon you the importance of your decision in the upcoming Annual Meeting of the Stockholders of Tessera Technologies, Inc. (“Tessera” or the “Company”) to the value of your investment. The newly reconstituted Board of Tessera and Starboard Value LP (“Starboard”) offer two distinctly different approaches to the business of monetizing intellectual property (“IP”). In this letter I would like to convince you that the current leadership team at Tessera is executing the right strategy to maximize the return on your investment in Tessera.
Tessera’s Stellar Track Record of Innovation
Tessera is a high technology company that was founded to deliver innovative semiconductor solutions that enable the connection and integration of microchips into microelectronic products. That core mission is more valuable today than at any time since the Company’s founding. In the industry it is well understood that semiconductor technology needs to double in performance every eighteen months, without increasing its cost, in order to keep pace with the demands of the market. This principle is known as “Moore’s Law.” Although this rate of progress has been achievable in the past by improvements within a single semiconductor chip, going forward it is only achievable by stacking the chips and interconnecting them. This is Tessera’s core business, and the Company has built, and continues to build, a series of enabling technologies to capture the growth associated with this fact.
I’d like to give you my view why I feel our Company is better positioned and has more potential value than ever before.
Success in the eco-systems of electronics is dependent upon the ability of engineers to continue to provide features to consumers in electronic products that are better, faster and cheaper than the ones they currently use.
For example, Tessera’s IP played a key role in transforming the brick-like mobile phones of the past into the slim, sleek phones you use today. Today we all marvel at the performance of the devices we use daily, but not a day goes by that we don’t note some dissatisfaction of what the device just won’t do. “My device is too bulky; this battery life stinks; it takes too long to download my data; I can’t see my screen in the sunlight; my phone is so heavy in my pocket; this notebook is too thick and heavy” – and a thousand more complaints, all waiting to be solved by engineers around the world.
Historically, many of these problems were solved by semiconductor companies whose innovations made transistors smaller and smaller. In 2013, that path has become too costly to travel, and the frontier of technology improvement has moved – from making transistors smaller and smaller, to interconnecting multiple chips into a single package, enabling higher performance.
Your company, Tessera, has built a core engineering competency which enables interconnections that are better, smaller, faster and cheaper than any other company in the world. Through both internally created and strategically acquired portfolios, our IP allows our customers to enhance both their time to market and the product performance that they deliver to the marketplace.
Tessera’s IP Business Model Treats Our Customers as Valued Partners and Helps Solve Their Problems
Tessera’s IP – patents, know-how, and trade secrets, all of which we continually develop – constitute a highly valuable and marketable asset that can be sold to product developers all over the world to enhance time to market and improve product performance. That is the business of Tessera. We help our customers by bringing tangible value to them. We are partners in technology with them.
Starboard’s Risky Patent Troll Approach Views Customers as Defendants
Starboard’s plan proposes a very different direction for Tessera’s business model that we strongly believe is not sustainable and will destroy stockholder value. Starboard is an investment management company that specializes in activist campaigns to gain board seats. Recently it has been targeting IP-rich companies like Tessera. Starboard believes Tessera should convert to a highly controversial business model known as “patent trolling.” According to the Congressional Research Service, this “business model focuses not on developing or commercializing technologies but on buying and asserting patents against companies that have already begun using them.” Starboard’s vision is to strip the engineering, marketing and sales from IP-rich companies, sign contracts with contingency fee-based legal bounty hunters, and assert patents against any unsuspecting companies, large or small, who might trespass on their property.
Many businesses hate patent trolls, and lawmakers are listening. Having heard testimony that “patent trolls are business terrorists” who threaten the national economy, Congress has put this model under a microscope by conducting multiple hearings on abusive patent troll litigation. Several Members of Congress have introduced anti-troll bills. Most recently, in introducing such a bill this week, Senator Charles Schumer from New York stated that “Patent trolls are bullying New York’s technology companies, stymieing innovation and dragging down growth.” http://www.pcworld.com/article/2037005/senator-introduces-legislation-targeting-patent-trolls.html
Starboard’s strategy can best be analogized as cutting down the apple tree to harvest the apples. In essence, Starboard wants to operate a business that seeks out defendants rather than customers.
Starboard’s Generalizations Don’t Match the Facts
Starboard would have you believe that immediately cutting research and development (“R&D”) would greatly increase the value of your investment. This is simply untrue. Of the approximately $33 million we spent on GAAP R&D expenses in our IP segment in 2012, Starboard would have spent the same $20 million for litigation support and patent portfolio research and acquisition. That leaves approximately $13 million that Starboard would have “saved” by abandoning our ongoing development of 3D and xFD stacked chip technologies. The highly valuable IP related to those technologies is key to our current relicensing initiatives, as well as for next generation IP business. That $13 million investment is already bearing fruit – helping us secure license royalties for approximately $40 million in 2013 alone – essentially tripling our 2012 investment.
So it is clear there are two distinctly different strategies to choose from in monetizing the IP. In the Tessera model, our engineers constantly enrich our patent portfolios. We harvest the apples while continuing to nourish the tree. We are harvesting our IP through collaborative partnerships with our customers, where our expertise is a value-added service. We constantly refresh our understanding of the needs of our customers in order to know what IP to develop in the future.
Being a valued partner and resource to our customers has allowed us to generate over $1.7 billion in revenue since inception, with at least $130 million -$150 million in recurring revenues expected in 2014, out of an annual run rate of at least $180 million -$200 million for our IP business. Contrast that to patent troll Unwired Planet’s (“UPIP”) revenues of $35,000 in aggregate, for the five quarters between late 2011 to year-end 2012.
Starboard likes to continually confuse the performance of Tessera’s IP business with the poor performance of the Company’s DigitalOptics investment, which has been a drag on Tessera’s performance over the last two years. The Company has been forthcoming in admitting that the DigitalOptics investment mistakenly defocused from technology creation and focused instead on establishing a vertically integrated manufacturing capability. It was a mistake. That investment is being refocused back on the core competency of Tessera – technology development – and the Board that is now in place knows how to change course and maximize the return to the stockholders for this investment.
Let’s not confuse the real decision here in this proxy fight: It is not about fresh perspective or finding an independent Board: that has been done already. It is not about finding a skilled management team: that has been done, too. What it is about is what IP monetization business model do you want to invest in – Tessera’s or Starboard’s? They are distinctly different. The leadership team and all the employees know how Tessera’s model works. They believe in it and it is part of the Company mission and defines the culture: “Know and understand your customer’s needs and deliver world-class innovative IP to them to shorten their time to market and lower their costs.”
Starboard has chosen a different path to IP monetization. It can be stated simply. Buy companies with IP, strip the costs, move on from the felled tree to the next tree to get more IP and do it again. Starboard’s strategy has sidelights that include acquiring patent portfolios from large technology companies on a contingency basis and asserting them against defendants using contingency fee lawyers.
We believe this strategy will not maximize stockholder value, and many public facts indicate that the strategy is flawed. Starboard’s primary foray into this field is a case in point. In 2010, Starboard targeted an IP-rich high technology company named Openwave, now re-named Unwired Planet (NASDAQ: UPIP). Under the direction of Starboard’s Mr. Feld, who took over as Chairman in September 2011, UPIP has followed the Starboard playbook and been transformed into an engineer-free patent troll. Results? UPIP’s total revenue for five quarters, from late 2011 to late 2012, has plummeted to $35,000 in aggregate. That is not a typo - $35,000 – that’s thousands, not millions. Under Mr. Feld, UPIP has been able to acquire one patent portfolio, the Ericsson deal signed in January 2013, which has not yet generated revenue. But even that deal is worrisome as UPIP has established a potential $1 billion contingency payment to Ericsson if a change of control occurs at UPIP in the next three years, effectively an anti-stockholder “poison pill.”
Generating Greater Stockholder Return with Tessera’s Current IP Model
The numbers do not lie. Average operating margins for the companies with IP business models similar to Tessera’s are meaningfully higher as depicted in the chart below:
|5-Year Average||5-Year Average|
|Technology IP Licensing||Operating Margin||Patent Trolls||Operating Margin|
|Tessera Technologies, Inc.||54%||RPX Corporation||26%|
|Dolby||44%||Acacia Research Corp||8%|
|InterDigital Inc||44%||Wi-Lan Inc.||(26%)|
|ARM Holdings||26%||Unwired Planet||(21431%)|
|Imagination Technologies Grp||12%|
I strongly urge you to consider these two highly different business models carefully. The future of your investment depends on which IP monetization model Tessera will follow. We believe that Starboard’s model is a risky road to ruin that will destroy value for stockholders, while our model is the right platform to create superior sustainable value for our stockholders.
Just as one data point – if you had invested in both UPIP and Tessera at the time Starboard’s Mr. Feld became chairman of UPIP’s board, your investment in UPIP would have risen just five percent, while your investment in Tessera would have grown over 63 percent in the same time period! That’s a return with Tessera that is more than 12 times greater than a return with UPIP. And that’s a fact.
Make no mistake about it. Much of the rise in Tessera’s stock price is a direct result of the strategic direction of Tessera’s reconstituted Board and execution by the new management team, despite the fact that Mr. Feld may like to take sole credit for it.
As interim chief executive officer and executive chairman, I urge you to take an active role and vote your proxy on the Company’s GOLD card for our Tessera nominees. Thank you very much.
|Richard S. Hill|
|Interim Chief Executive Officer and Executive Chairman|
Safe Harbor Statement
This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected, particularly with respect to the Company’s strategic plans, market opportunities, financial targets and projections, value creation and stockholder returns. Material factors that may cause results to differ from the statements made include the plans or operations relating to the Company’s businesses; market or industry conditions; changes in patent laws, regulation or enforcement, or other factors that might affect the Company’s ability to protect or realize the value of its intellectual property; the expiration of license agreements and the cessation of related royalty income; the failure, inability or refusal of licensees to pay royalties; initiation, delays, setbacks or losses relating to the Company’s intellectual property or intellectual property litigations, or invalidation or limitation of key patents; the timing and results, which are not predictable and may vary in any individual proceeding, of any ICC ruling or award, including in the Amkor arbitration; fluctuations in operating results due to the timing of new license agreements and royalties, or due to legal costs; the risk of a decline in demand for semiconductor and camera module products; failure by the industry to use technologies covered by the Company’s patents; the expiration of the Company’s patents; the Company’s ability to successfully complete and integrate acquisitions of businesses; the risk of loss of, or decreases in production orders from, customers of acquired businesses; financial and regulatory risks associated with the international nature of the Company’s businesses; failure of the Company’s products to achieve technological feasibility or profitability; failure to successfully commercialize the Company’s products; changes in demand for the products of the Company’s customers; limited opportunities to license technologies and sell products due to high concentration in the markets for semiconductors and related products and camera modules; the impact of competing technologies on the demand for the Company’s technologies and products; and the reliance on a limited number of suppliers for the components used in the manufacture of DOC products. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this release. The Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended Dec. 31, 2012, include more information about factors that could affect the Company’s financial results. The Company assumes no obligation to update information contained in this press release. Although this release may remain available on the Company’s website or elsewhere, its continued availability does not indicate that the Company is reaffirming or confirming any of the information contained herein.
About Tessera Technologies
Tessera Technologies, Inc. is a holding company with operating subsidiaries in two segments: Intellectual Property and DigitalOptics. Our Intellectual Property segment, managed by Tessera Intellectual Property Corp., generates revenue from manufacturers and other implementers that use our technology. Our DigitalOptics business delivers innovation in imaging systems for smartphones. For more information call 1.408.321.6000 or visit www.tessera.com.
Tessera, the Tessera logo, DOC, the DOC logo, and Invensas Corporation are trademarks or registered trademarks of affiliated companies of Tessera Technologies, Inc. in the United States and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.
Even though it’s now Microservices Journal, long-time fans of SOA World Magazine can take comfort in the fact that the URL – soa.sys-con.com – remains unchanged. And that’s no mistake, as microservices are really nothing more than a new and improved take on the Service-Oriented Architecture (SOA) best practices we struggled to hammer out over the last decade. Skeptics, however, might say that this change is nothing more than an exercise in buzzword-hopping. SOA is passé, and now that people are ...
Mar. 26, 2015 10:15 PM EDT Reads: 793
Cloud computing started a technology revolution; now DevOps is driving that revolution forward. By enabling new approaches to service delivery, cloud and DevOps together are delivering even greater speed, agility, and efficiency. No wonder leading innovators are adopting DevOps and cloud together! In his session at DevOps Summit, Andi Mann, Vice President of Strategic Solutions at CA Technologies, explored the synergies in these two approaches, with practical tips, techniques, research data, wa...
Mar. 26, 2015 09:00 PM EDT Reads: 4,813
The WebRTC Summit 2014 New York, to be held June 9-11, 2015, at the Javits Center in New York, NY, announces that its Call for Papers is open. Topics include all aspects of improving IT delivery by eliminating waste through automated business models leveraging cloud technologies. WebRTC Summit is co-located with 16th International Cloud Expo, @ThingsExpo, Big Data Expo, and DevOps Summit.
Mar. 26, 2015 08:45 PM EDT Reads: 1,098
SYS-CON Events announced today that Cisco, the worldwide leader in IT that transforms how people connect, communicate and collaborate, has been named “Gold Sponsor” of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Cisco makes amazing things happen by connecting the unconnected. Cisco has shaped the future of the Internet by becoming the worldwide leader in transforming how people connect, communicate and collaborat...
Mar. 26, 2015 07:00 PM EDT Reads: 4,996
WSM International is launching a DevOps services division that offers assessment, consulting and implementation to large enterprises and organizations with complex infrastructures. This is the first independent services company to create a dedicated practice to help organizations looking to transition to the DevOps model. The concept of DevOps is to blend information technology (IT) software development with operations to optimize the computing infrastructure according to the specific needs of ...
Mar. 26, 2015 07:00 PM EDT Reads: 1,325
The term culture has had a polarizing effect among DevOps supporters. Some propose that culture change is critical for success with DevOps, but are remiss to define culture. Some talk about a DevOps culture but then reference activities that could lead to culture change and there are those that talk about culture change as a set of behaviors that need to be adopted by those in IT. There is no question that businesses successful in adopting a DevOps mindset have seen departmental culture change, ...
Mar. 26, 2015 07:00 PM EDT Reads: 3,880
15th Cloud Expo, which took place Nov. 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA, expanded the conference content of @ThingsExpo, Big Data Expo, and DevOps Summit to include two developer events. IBM held a Bluemix Developer Playground on November 5 and ElasticBox held a Hackathon on November 6. Both events took place on the expo floor. The Bluemix Developer Playground, for developers of all levels, highlighted the ease of use of Bluemix, its services and functionalit...
Mar. 26, 2015 06:30 PM EDT Reads: 4,587
SYS-CON Events announced today that robomq.io will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. robomq.io is an interoperable and composable platform that connects any device to any application. It helps systems integrators and the solution providers build new and innovative products and service for industries requiring monitoring or intelligence from devices and sensors.
Mar. 26, 2015 06:00 PM EDT Reads: 1,201
Temasys has announced senior management additions to its team. Joining are David Holloway as Vice President of Commercial and Nadine Yap as Vice President of Product. Over the past 12 months Temasys has doubled in size as it adds new customers and expands the development of its Skylink platform. Skylink leads the charge to move WebRTC, traditionally seen as a desktop, browser based technology, to become a ubiquitous web communications technology on web and mobile, as well as Internet of Things...
Mar. 26, 2015 06:00 PM EDT Reads: 1,632
"Our premise is Docker is not enough. That's not a bad thing - we actually love Docker. At ActiveState all our products are based on open source technology and Docker is an up-and-coming piece of open source technology," explained Bart Copeland, President & CEO of ActiveState Software, in this SYS-CON.tv interview at DevOps Summit at Cloud Expo®, held Nov 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Mar. 26, 2015 06:00 PM EDT Reads: 4,589
Chef announced that James Casey has been appointed Vice President of Engineering. Casey has more than a decade of experience managing engineering and operations for CERN and is a three-year Chef veteran. Casey brings deep expertise in DevOps practices, as well as an innate understanding of the needs of Chef customers and the community. Casey will oversee the quality and cadence of product development for Chef's engineering and operations teams, and will report to Chef CEO Barry Crist.
Mar. 26, 2015 05:00 PM EDT Reads: 940
WebRTC is an up-and-coming standard that enables real-time voice and video to be directly embedded into browsers making the browser a primary user interface for communications and collaboration. WebRTC runs in a number of browsers today and is currently supported in over a billion installed browsers globally, across a range of platform OS and devices. Today, organizations that choose to deploy WebRTC applications and use a host machine that supports audio through USB or Bluetooth can use Plantro...
Mar. 26, 2015 05:00 PM EDT Reads: 1,457
Today, IT is not just a cost center. IT is an enabler and driver of business. With the emergence of the hybrid cloud paradigm, IT now has increasingly more capabilities to create new strategic opportunities for a business. Hybrid cloud allows an organization to utilize multi-tenant public clouds, dedicated private clouds, bare metal hosting, and the associated support and services for the right use cases through an on-demand, XaaS model. This model of IT creates tremendous opportunities for busi...
Mar. 26, 2015 05:00 PM EDT Reads: 2,868
DevOps tasked with driving success in the cloud need a solution to efficiently leverage multiple clouds while avoiding cloud lock-in. Flexiant today announces the commercial availability of Flexiant Concerto. With Flexiant Concerto, DevOps have cloud freedom to automate the build, deployment and operations of applications consistently across multiple clouds. Concerto is available through four disruptive pricing models aimed to deliver multi-cloud at a price point everyone can afford.
Mar. 26, 2015 04:52 PM EDT Reads: 524
Docker is an excellent platform for organizations interested in running microservices. It offers portability and consistency between development and production environments, quick provisioning times, and a simple way to isolate services. In his session at DevOps Summit at 16th Cloud Expo, Shannon Williams, co-founder of Rancher Labs, will walk through these and other benefits of using Docker to run microservices, and provide an overview of RancherOS, a minimalist distribution of Linux designed...
Mar. 26, 2015 04:15 PM EDT Reads: 2,274