Tessera pops on first day of trading

San Jose, Calif.-based Tessera has been trading at about $18 Thursday morning. The stock was initially offered at $13 a share, higher than the $9 to $11 price that had been expected.

The company designs flexible, high-performance semiconductor packages, the plastic and metal sleeve that wraps around a chip and holds it to the motherboard. Revenue largely comes from licensing fees, royalties, engineering fees and legal settlements.

Several large chipmakers have adopted the company?s technology for packaging memory chips. Intel, for instance, has licensed Tessera?s technology for a forthcoming flash memory package that holds four chips. Memory based on designs from Rambus comes in Tessera-style packages and, in all probability, memory based on the upcoming Double Data Rate 2 standard will, too, analysts say.

The company has also sued a number of large companies, including Texas Instruments and Sharp. A lawsuit involving Samsung is expected to go to trial in November 2004. So far, more than $19 million in settlement fees have been paid to the 84-person company.

More actions will likely follow, according to sources. The company currently has 44 licensees, but its IPO filing states: "We believe that more than 100 companies across the semiconductor supply chain have invested in the materials, equipment and assembly infrastructure...that incorporate our technology." In other words, there are at least 56 companies the company believes could be infringing its patents.

Although historically a backwater of the chip world, packaging is taking on increased importance, as cell phones and other devices get smaller but more powerful. Packaging is a $7 billion industry, but it will grow to $12 billion in 2007, a faster growth rate than that of the chip industry as a whole, according to Semico Research.

"The importance of packaging has grown over the last 10 years, because as chips have gotten faster, issues on how to get signals out of the chip have grown," said Nathan Brookwood, an analyst at Insight 64. "It is a nontrivial problem. You've got materials issues, thermal issues, manufacturing issues."

While trading began Thursday, the company is hardly a start-up. Its stock closed at $18.50. Tessera was founded in 1990 and tried to go public in 2001. The company could not be reached for comment.