Tessera Technologies Announces Second Quarter 2005 Results

Highlights: Second Quarter 2005 Compared to Second Quarter 2004

-- Total revenue was $22.5 million, up 27 percent.

-- Royalties and License Fees revenue (previously identified as Intellectual Property (IP) revenue) was $13.3 million, up 63 percent.

-- Services revenue was $3.8 million, up 31 percent.

Income before taxes was $12.0 million for the second quarter of2005, compared to $9.2 million in the prior year's quarter. Thecompany's effective book tax rate in the second quarter of 2005 was 36percent compared to 5 percent in the prior year's quarter. Thisincrease reflects the reversal in the fourth quarter of 2004 of thevaluation allowance against the company's deferred tax asset, whichconsisted mainly of net operating losses carried forward (NOL) fromprior periods. Net income was $7.7 million for the second quarter of2005. This included an income tax provision charge of $4.2 million, ofwhich $1.2 million was cash taxes paid. The prior year's net incomewas $8.7 million, which included an income tax provision charge of$497,000, of which $313,000 was cash taxes paid.

Pro forma net income for the second quarter of 2005 was $10.9million and pro forma net income per diluted share was $0.23, comparedto $8.9 million and $0.19, respectively, last year. Pro forma netincome is defined as income adjusted for non-cash tax expense andstock-based compensation. Earnings per diluted share for the secondquarter 2005 on a GAAP basis were $0.16, compared to $0.19 last year.

Bruce McWilliams, Tessera's chairman and chief executive officer,stated, "During the first half of 2005, Tessera demonstrated continuedstrong growth with an almost 50 percent increase in Royalties andLicense Fees from the first half of 2004. The growth was driven by newcustomers and expanded agreements with existing customers.Furthermore, our royalty revenue from packages used for DRAM almosttripled in the first half of 2005 compared to the first half of 2004.As DDR2 is still in the beginning stages of adoption, revenue fromthis area is not yet significant; however, it will keep increasing inimportance for us into 2006.

"Looking ahead, our long-term growth is expected to be driven by anumber of factors. First, we expect continued strong consumer demandfor small form factor, feature-rich products that utilize increasinglygreater amounts of our chip-scale and multi-chip packaging technology.Second, we believe we are paid on less than half of all the chip scalepackages produced using our technology, and we anticipate signing newlicensees. Third, we are confident that chip scale packages will beused for both DDR2 and DDR3 chips, as we believe chip scale packageswill be the most cost-effective means of packaging these chips. Weestimate once DDR2 becomes mainstream in 2006, our Royalties andLicense Fees growth rate will approximate 50 percent for years tocome."

McWilliams continued, "Our goal is to expand well beyond our coretechnology by the end of the decade, and we are executing on ourstrategy. For example, in May, we announced an expansion of ourrelationship with North Corporation, a developer of advanced circuitboard technologies in Japan. Our agreement with North evidences ourcommitment to growing our IP portfolio and building the infrastructurerequired to support Tessera's future technology."

Highlights: Six-month Period Ended June 30, 2005 Compared to June30, 2004

-- Total revenue was $50.4 million, up 64 percent.

-- Royalties and License Fees was $25.1 million, up 48 percent.

-- Services revenue was $7.6 million, up 47 percent.

Net income for the first half of 2005 was $19.7 million, comparedto net income of $12.8 million in the first half of 2004. Pro formanet income for the six months ended June 30, 2005 was $28 million andpro forma net income per diluted share was $0.59, compared to $13.9million and $0.30 per diluted share, respectively, for the six monthsended June 30, 2004. Pro forma net income is defined as incomeadjusted for non-cash tax expense and stock-based compensation.Earnings per diluted share for the first half of 2005 on a GAAP basiswere $0.41, compared to $0.28 for the first half of 2004.

"Tessera ended the second quarter with cash and cash equivalentsof $138 million, compared to $127.1 million at the end of the priorquarter," said Doug Norby, senior vice president and chief financialofficer. "Our research and development expenses plus costs of revenue,representing our total technical effort, was $9.3 million for thefirst half of 2005, up 17 percent from last year's first half. Thiseffectively demonstrates our success in having Tessera's customersfund a greater portion of our total technical effort."

2005 Financial Guidance

Tessera expects third quarter 2005 total revenues to be in therange of $18.5 million to $19.0 million. Expenses, which include costof revenue, research and development, and sales, general andadministrative, are expected to be approximately $13.0 million. Thebook-tax rate is projected to be 36 percent with cash taxes paidapproximately 3 percent of revenue during this third quarter. Tesseraestimates a fully diluted share count using the treasury method ofapproximately 48 million in the third quarter 2005 as compared to 47.5million in the second quarter of 2005.

For the full year 2005, Tessera now expects total revenues to bein the range of $94.0 million to $96.0 million. This compares to thecompany's previous guidance given on June 8th of $92.0 million to$94.0 million. Expenses, which include cost of revenue, research anddevelopment, and sales, general and administrative, are projected tobe in the range of $47.5 million to $48.0 million. The company'sbook-tax rate is projected to be 36 percent of pre-tax income withcash taxes paid ranging from 4 percent to 5 percent of revenue for theyear as a whole. Diluted share count for the year as a whole isprojected to be 48.2 million.

Norby continued, "Regarding our guidance policy, as statedpreviously we include estimates of the impact of new agreements in ourannual guidance; however, for our quarterly guidance, we do notinclude the impact of new agreements that are not already signed. Theincreased full-year 2005 revenue guidance is due to the anticipatedincrease in contributions from all revenue lines coming into thesecond half of 2005, due both to second quarter revenues being higherthan projected and increases in our outlook for revenue for the secondhalf of 2005."

Conference Call Information

Tessera will host an investor conference call today at 1:30 P.M.Pacific (4:30 P.M. Eastern). The call will be accessible live bydialing 877-866-5534, or 706-679-0753 for international callers,approximately 10 minutes prior to the start of the conference call. A48-hour replay will be available by dialing 800-642-1687 or706-645-9291 for international callers. Enter access code 7478424. Thecall will also be simultaneously webcast and available on Tessera'sweb site at http://www.tessera.com and will remain posted on the website for a period of 90 days.

About Tessera Technologies, Inc.

Tessera Technologies, through its wholly-owned subsidiary Tessera,Inc., is a leading provider of miniaturization technologies for theelectronics industry. Tessera enables new levels of miniaturizationand performance by applying its unique expertise in the electrical,thermal and mechanical properties of materials and interconnect. As aresult, Tessera's technologies are widely adopted in high-growthmarkets including consumer, computing, communications, medical anddefense. Tessera's customers include the world's top semiconductorcompanies such as Intel, Samsung, Renesas, Toshiba and TexasInstruments. The company's stock is traded on the Nasdaq NationalMarket under the symbol TSRA. Tessera is headquartered in San Jose,California. www.tessera.com.

Note: Tessera and the Tessera logo are registered trademarks. Allother company, brand and product names may be trademarks or registeredtrademarks of their respective companies.

Safe Harbor Statement

This press release contains forward-looking statements, which aremade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements involverisks and uncertainties that could cause actual results to differsignificantly from those projected. Factors that might cause orcontribute to such differences include, but are not limited to,fluctuations in Tessera's operating results due to the timing of newlicense agreements and royalties, Tessera's ability to protect itsintellectual property and the risk of a decline in demand forsemiconductor products. You are cautioned not to place undue relianceon the forward-looking statements, which speak only as of the date ofthis release. Tessera's filings with the Securities and ExchangeCommission, including its Annual Report on Form 10-K for the yearended December 31, 2004, and its Quarterly Report on Form 10-Q filedfor the quarter ended March 31, 2005 include more information aboutfactors that could affect the company's financial results.
TESSERA TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands, except per share amounts)
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Revenues:
Royalty and license fees $13,292 $ 8,136 $25,125 $17,032
Past production payments 5,359 6,606 17,669 8,580
Service revenues 3,810 2,904 7,566 5,155
-------- -------- -------- --------
Total revenues 22,461 17,646 50,360 30,767
-------- -------- -------- --------
Operating expenses:
Cost of revenues 3,287 2,037 6,250 3,887
Research and development 1,550 1,855 3,055 4,076
Selling, general and
administrative 6,251 4,667 11,415 8,879
Stock-based compensation 181 61 315 186
-------- -------- -------- --------
Total operating
expenses 11,269 8,620 21,035 17,028
-------- -------- -------- --------
Operating income 11,192 9,026 29,325 13,739
Other income, net 773 133 1,360 242
-------- -------- -------- --------
Income before taxes 11,965 9,159 30,685 13,981
Income tax provision 4,240 497 11,017 1,220
-------- -------- -------- --------
Net income attributable to
common stockholders $ 7,725 $ 8,662 $19,668 $12,761
======== ======== ======== ========
Basic and diluted net income
per share attributable to
common stockholders
Net income per common
share; basic $ 0.18 $ 0.22 $ 0.45 $ 0.33
======== ======== ======== ========
Net income per common
share; diluted $ 0.16 $ 0.19 $ 0.41 $ 0.28
======== ======== ======== ========
Weighted average number of
shares used in per share
calculations; basic 43,873 39,446 43,361 38,979
======== ======== ======== ========
Weighted average number of
shares used in per share
calculations; diluted 47,494 46,472 47,634 46,046
======== ======== ======== ========

----
(1)Operating expense line item detail excludes stock-based
compensation, as follows:

Research and development $ 72 $ 16 $ 96 $ 47
Selling, general and
administrative 109 45 219 139
-------- -------- -------- --------
Total $ 181 $ 61 $ 315 $ 186
======== ======== ======== ========



SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
----------------------------------------
(in thousands)
(unaudited)

Non-cash income tax
expense $ 3,030 $ 184 $ 8,065 $ 907



TESSERA TECHNOLOGIES, INC.

CONSOLIDATED SUMMARY BALANCE SHEET INFORMATION
----------------------------------------------
(in thousands)


June 30, December 31,
2005 2004
------------ ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 138,046 $ 108,339
Accounts receivable 3,351 3,263
Other current assets 17,050 16,475
------------ ------------
Total current assets 158,447 128,077

Property and equipment, net 4,056 2,484
Other assets 6,446 9,121
------------ ------------
Total assets $ 168,949 $ 139,682
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,798 $ 984
Accrued liabilities 4,294 3,615
Deferred revenue 104 107
------------ ------------
Total current liabilities 6,196 4,706
------------ ------------


Stockholders' equity:

Common Stock 44 42
Additional paid-in capital 178,199 167,359
Deferred stock-based compensation (3,148) (414)
Accumulated deficit (12,342) (32,011)
------------ ------------
Total stockholders' equity 162,753 134,976
------------ ------------

Total liabilities and
stockholders' equity $ 168,949 $ 139,682
============ ============



TESSERA TECHNOLOGIES, INC.

RECONCILIATION OF PRO FORMA NET INCOME TO NET INCOME
----------------------------------------------------
(in thousands, except per share amounts)
(unaudited)


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------


Pro forma net income $10,936 $ 8,907 $28,048 $13,854

Less:
Stock-based
compensation 181 61 315 186
Non-cash income tax
expense 3,030 184 8,065 907

-------- -------- -------- --------
Net income, as reported $ 7,725 $ 8,662 $19,668 $12,761
======== ======== ======== ========

Pro forma net income per
common share; diluted $ 0.23 $ 0.19 $ 0.59 $ 0.30
======== ======== ======== ========
Weighted average number of
shares used in per share
calculations; diluted 47,494 46,472 47,634 46,046
======== ======== ======== ========