InterDigital Inc (IDCC)

[techinvester]

Several reasons why QCOM should consider buying IDCC

1. Increase percentage of LTE patent pool controlled by QCOM from 21% to %40
• Currently QCOM controls 21% (FYI – Bought Flarion for $600M in 8/11/2005 and Airgo Networks 1Q 2007 for LTE bootstrap to gain large control % of patents, shows QCOM is not adverse to buying IP when prudent)
• Currently IDCC controls 19%
• Combined QCOM & IDCC would control ~40%
• In 3Q 2006 QCOM believed they owned 47% of WCDMA

2. Increase QCOM FRAND licensing rate by controlling larger % of LTE patent pool
• Estimated 3G QCOM royalty rate ~4-5%
• Forecasted 4G QCOM royalty rate ~2-3.25%
• Purchase of IDCC patents would permit QCOM to negotiate higher royalty rates possibly back to 3G or higher royalty rates, i.e. control 40% of patents much closer to 3G 47%
• Reference QCOM’s LTE/WiMax PATENT LICENSING STATEMENT (December 2008) for an exception to their self imposed 3.25% cap “Qualcomm’s current expectation may change in the future based on, among other things, changes to the LTE and/or WiMax standards and/or changes to Qualcomm’s patent portfolio (e.g., acquisition of additional applicable patents).”

3. Increase percentage of essential LTE patent pool controlled by QCOM
• Estimated # of essential patents by owner is subjective and varies by report
• The following chart shows one assessment of essential patents by owner (The chart should be used as a reference only as other reports differ on essential patent holdings)

• • • The following chart courtesy of Ocean Tomo used their proprietary process for patent evaluation to compare the LTE Nortel IP to competitors. The chart is for reference to show LTE patent based comparisons between QCOM, Nortel and IDCC.

• • 4. Eliminate 1 of 2 competitors that could put QCOM chips at risk for litigation and/or QCOM royalty rate at risk and promote industry consolidation
• Intellectual Ventures and IDCC are both pure IP players and do not have a cross licensing need
• QCOM customers may look favorably upon this acquisition to simplify patent use approval process as part of industry consolidation

5. Increase number of QCOM qualified telecommunication engineers
• Proliferation of wireless patent creation by other companies will challenge QCOM’s leadership position
• QCOM has a very large number of open engineering positions on their web site
• IDCC has over 200 engineers and are recognized leaders in the industry
• Experience in areas that seem to be of interest to QCOM where they have bought IP; OFDM, MIMO, etc. Flarion 8/11/2005 $600M (OFDM), Airgo Networks 1Q 2007 (MIMO)
• LTE RAN (Radio Access Network) patent comparison between QCOM, IDCC & Samsung. If the rumors are correct that Samsung has withdrawn from the auction that is a shame as they would benefit from IDCCs patents


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6. The reasons I listed above would drive financial gain for QCOM. When evaluating the financials for IDCC currently, we need to keep in mind various potential upsides for future licensees such as payment owed for past usage etc.. Various analysts, Nuke John, jmspaesq and others have done a nice job highlighting the upside for IDCC if sold. All of the upside for IDCC would fall to the bottom line for the acquiring party less purchase costs and any overhead. Although QCOM provided provisions enabling them to increase their royalty rate upon patent purchases, dealing with current licensees may be problematic.

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