Will Tessera's 'smart module' gamble pay off?

Acquire or bust
The company's sales in imaging and optics ''are modest,'' said James' Mosesmann. (Tessera's IP licensees) ''are not household names. But all it takes is a couple of big OEMs to (realize some) significant volumes.''

There is also a new mindset at Tessera, which is seeking to ''monetize'' the technology, he added. The analyst was referring to a move made last year, when Tessera chairman, president and chief executive, Bruce McWilliams, transitioned to a new role as chief strategy officer. Henry Nothhaft, then vice chairman of the board, became president and chief executive. McWilliams remained chairman.

Tessera also believes it has the pieces in imaging and optics to pay dividends--finally. It began to assemble the pieces in 2005, when Tessera purchased certain assets of Shellcase Ltd., a provider of wafer- level image sensor packaging technology.

Then, in 2006, Tessera purchased Digital Optics Corp., a developer of micro-optical solutions. In 2007, Tessera acquired Eyesquad, a supplier of smart optics technologies, such as digital auto-focus and optical zoom solutions for camera phones and other electronic products.

Last year, Tessera acquired FotoNation, a provider of embedded imaging solutions for digital still camera and mobile phone applications. Principal products encompass technologies for red-eye correction; face tracking; smile and blink detection; as well as other solutions for enhancing digital image quality. FotoNation's technology is embedded in more than two out of three digital still cameras sold today.

In April of 2009, Tessera made its last acquisition by buying certain assets of Israel-based Dblur Technologies Ltd., a developer of software lens technology for cell phone cameras and other imaging applications.

The technologies primarily target the image sensor, via Shellcase in CSP, the lens stack through DigitalOptics, and image quality/image processing, thanks to Eyesquad.

All told, Tessera is trying to turn the camera-phone IP supply chain upside down. The company does not make or sell the CMOS image sensor, but it offers many of the critical packaging and IP technologies for the segment.

One of the key goals is to re-invent the camera module for good reason. Nokia has set a goal to reach a camera module cost of about $1.00, according to Barclays Capital. Other OEMs are also attempting to drive down the cost of their camera phones.

To achieve that goal, there are complex choices for OEMs. First, a handset camera module includes the image sensor, optical lens, image processor, housing and substrate, according to Barclays Capital.

Traditionally, the image sensor is wirebonded to a PCB substrate. Then the lens barrel is then mounted in its housing on top of the substrate. ''A module maker or handset OEM can choose, among other things: 1) whether to package the image sensor using chip scale packaging; chip-on-board, or flip-chip packaging; 2) whether to then mount the sensor on a ceramic substrate or a glass substrate; and 3) whether to use a traditional optical lens stack or a wafer level lens stack,'' according to the report.

It gets even more complex. ''The supply chain in camera phones generally operates as follows: 1) image sensor vendors, image processor vendors, and lens vendors supply their respective components to the camera module marker; and 2) the camera module maker integrates all the components together and ships the complete camera module to the handset OEM,'' according to the report.

Cost is the key. The image sensor itself makes up 55 percent of the cost of a module. The ASP on a VGA camera module has dropped about 50 percent per year over the last three to four years, and is currently about $1.50"$2.00 each, according to the report.

From 2002 to 2007, ''image sensor manufacturers were able to shrink the pixel size from 5um to about 1.75um. This enabled smaller, cheaper image sensor chips,'' according to Barclays. ''However, at a certain point, smaller pixels actually raise the camera module cost. This is due to the fact that smaller pixel are less sensitive to light, which lowers the quality of the image. In order to compensate for this effect and maintain the same quality level, module makers must utilize better lens stacks and better image processors, which in turn raises the cost of the module.''