InterDigital Communications (IDCC): Sorry - it took a while to compile

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Posted by: Data_Rox	Date: Monday, March 17, 2003 2:48:33 PM
In reply to: None	Post # of 294838

Sorry - it took a while to compile from my notes.....
R^)

InterDigital Communications Corporation Conference Call

OPERATOR: Good afternoon. My name is Sheika (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the InterDigitial Communication Corporation conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply perss star, then the number one, on your telephone keypad. If you would like to withdraw your question, press star, then the number two, on your telephone keypad. Thank you.

Mr. Hicks, you may begin your conference.

GUY HICKS, INTERDIGITIAL COMMUNICATIONS CORPORATION, VP OF COMMUICATIONS AND IR: Thank you, Sheika (ph) and good afternoon. Welcome to the InterDigital Communications Corporation conference call to discuss the Ericsson license agreements, the settlement, and their impact on the company. My name is Guy Hicks, I'm the Vice President of Communications and Investor Relations. With me today on the call are Howard Goldberg, President and Chief Executive Officer, Rich Fagan, the Chief Financial Officer.

Before we begin the call, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations as to receipt, timing, amount and calculation of payments from Ericsson, Sony-Ericsson, Nokia and Samsung, and the royalty obligations of those parties, as well as revenue recognition of such payments and royalties. The effect of the Ericsson and Sony-Ericsson license agreements on the royalty obligations, including pre-payment obligations of Nokia and Samsung under their licensing agreements, and the application of the MFL (ph) clause. The effect of the Ericsson and Sony-Ericsson license agreements, and establishing licensing rates for Nokia and Samsung on the companies licensing efforts, other licensees and the value of the companies technology and patented inventions.

Ericsson, GSM, GPRS, EOTS (ph) platform and our relationship with Ericsson, future licensing matters, our licensees future financial and market positions, message for creating enterprise value including combining patent and technology licensing with product-oriented business relationships, our strategic objectives and future financial performance, including revenue, cash flow and expenses. Our technology and product offerings and the deployment of wireless services, technologies and products. Actual outcomes could differ materially from those expressed in any such forward looking statements due to a variety of factors, including those set forth in the companies most recent filings on forms 10-K and 10-Q, and in this mornings press release and form 8-K.

With that, I would now like to re-introduce Howard and turn the call over to him for some remarks.

HOWARD GOLDBERG, INTERDIGITAL COMMUNICATIONSCORPORATION, PRESIDENT AND CEO: Good morning everyone. Today is really a terrific day in King of Prussia. Sunny out, spring has come, and we're (inaudible) milestone event for the company. We're announcing our agreements with Sony, and Sony-Ericsson. We put more than ten years of history behind us. We've worked with them to establish a positive business relationship and we now have that relationship with yet another industry-leading company. We've (ph) reached agreements with Ericsson and with Sony-Ericsson, we've accomplished a number of things. They include: removing the uncertainty and eliminating the potential risks associated with the jury trial, defining the payment allocations of two other of the industries leading wireless producers and starting a process to trigger the payment of those royalty obligations, affirming the market failure (ph) of our technology and re-affirming the global essentiality of InterDigital's patents.

The impact of this set of agreements on the company will be very positive. It's going to move us toward our overall strategic objective of generating sustainable long-term growth at a faster rate than the composite wireless sector. Over the next four years we're going to generate substantial cash flow for the company. As we all know, cash flow and a strong balance sheet is an enabler (ph) of many corporate activities. These activities certainly include M&A activities, it positions the company differently for the strong engineering force that we will continue to hire, it creates an atmosphere of stability and yet one that is an atmosphere of challenge as we approach other activities, and it establishes the framework to improve our visibility on cash flow and earnings. And it gives us the opportunity to participate on a powerful 3G product platform which has been produced Ericsson.

Having looked at the dynamics of this new relationship from a top level, I want to take just a minute to acknowledge the efforts of a very broad team from InterDigital that participated in the negotiation and the structuring of these agreements with Sony and with Sony Ericsson. That team included Rich Fagan and Bill Merrick (ph). It was our intention that Bill Merrick (ph) would be on this call. Unfortunately, there was an illness in the family and Bill is unable to participate.

Having said that, I'll now turn the call over to Rich Fagan to discuss the agreement and its impact in greater detail.

RICH FAGAN, INTERDIGITAL COMMUNCATIONS, CFO: Thank you, Howard.

Well good afternoon to everyone. I'd like to take you through both the salient economic points of the agreements with Ericsson and Sony Ericsson, and the impact we believe these agreements could have on our patent license agreements with Nokia and Samsung.

During my comments, I'll highlight the impacts we expect these items to have on InterDigital from a cash and accounting perspective. Also, when I refer to ITC, I am referring to our wholly owned subsidiary, InterDigital Technology Corporation.

Let me start with the Ericsson and Sony Ericsson agreements. First, let me describe the cash elements of the agreements. We expect to receive approximately $34 million in installment payments over the next 12 months related to sales of terminal and infrastructure products through December 31, 2002. Ericsson is also obligated to pay InterDigital an annual license fee of $6 million per year for sales of covered infrastructure equipment for each of the years 2003 through 2006.

Sony Ericsson will be obligated to pay ITC a royalty on each license product sold. In return for advance royalty payments related to estimates for 24-month periods, Sony Ericsson will receive certain free payment discounts and credits. The initial payments for the first 24-month period are mandatory, and Sony Ericsson is obligated to make these payments in 2003.

Based on our estimates, the total prepayments for the first 24-month period could be in the range of $20 to $25 million. Assuming that Sony Ericsson maintains its present market share of covered product sales, we believe that the $20 to $25 million is conservative and likely to be exhausted before the end of 2004. If this were the case, Sony Ericsson would have the option to make additional prepayments and receive related prepayments and discounts and credits, or pay royalties on an ongoing basis at higher base royalty rates.

So how does all this add up? Well, by our estimates, the initial cash we expect to receive from Ericsson and Sony Ericsson within 12 months is $60 to $65 million. In addition to the $60 to $65 million, we expect to receive an additional $18 million in succeeding years for infrastructure license fees. We also could receive additional royalties from Sony Ericsson after exhaustion of the initial prepayments for 2003 and 2004 royalty obligations, and for royalties related to 2005 and 2006. The total amount for which Ericsson and Sony-Ericsson are obligated over the life of the agreements would increase if Sony-Ericsson maintains or improves its position in the marketplace.

With respect to the accounting for the impact of these agreements, we're currently in the process of determining the amount we will record in our financial statements in the first quarter 2003 and on a prospective basis. We should have this analysis completed shortly and hope to provide clarity on this issue in the near future, perhaps on our 10-K that is to be filed by the end of this month.

We also received contingent value in the Ericsson agreement. We were granted an option for reference design license and support agreement for Ericsson's GSM-GPRS-UMTS platform. Before I move on, I'd just like to note that the use of prepayments in patent license agreements is a risk mitigation technique we have successfully employed in our licensing program over the years, which has provided a win-win solution to both ITC and its licensees. And that we found this technique useful in arriving at a win-win solution with Sony-Ericsson.

Now, let's move on to the impacts these agreements could have on InterDigital with respect to existing license agreements with Nokia and Samsung.

As Howard noted, the license agreements with Ericsson and Sony-Ericsson establish the financial terms necessary to define the royalty obligations of Nokia and Samsung on sales of 2G, GSM and TDMA, and 2.5 G, GSM, GPRS, TDMA products under their existing agreements with ITC.

Under the most favored licensee provision applicable to their respective patent licenses, both companies are obligated to pay royalties to ITC on sales of covered products from January 1, 2002, by reference to the terms of the Ericsson and Sony-Ericsson licenses.

Applying the financial terms over the Nokia and Samsung requires that the amount paid or to be paid by Ericsson and Sony-Ericsson, as well as other relevant factors, be evaluated. The agreement contemplates a period of review and discussion between the parties to work out the details. However, Nokia and Samsung have a legally binding obligation to pay royalty rates based on the Ericsson and Sony-Ericsson agreements. Therefore, absent an agreement by the parties as to the application of the Ericsson, Sony-Ericsson terms, ITC can seek a final binding resolution in arbitration.

We believe that the application of the MFL provision is reasonably clear. Based on that view, and other assumptions noted in the press release and 8-K filed today, we have made the following projections. As to 2002, Nokia's royalty obligations could be in the range of $100 to $120 million, and Samsung's royalty obligations could be in the range of $22 to $27 million. Both these ranges are stated in terms of the revenue we could recognize and the cash we could expect to receive from Nokia and Samsung for 2002 royalty obligations.

Like Sony-Ericsson, we believe Nokia and Samsung are obligated to make initial advance royalty prepayments related to their estimated 2003-2004 sales of covered products. We conservatively estimate that the aggregate initial prepayment of royalties, net of related discounts, from Nokia and Samsung, could be in the range of $180 to $220 million. Nokia and Samsung also would have the option to make additional prepayments and receive related prepayment discounts or pay royalties on an ongoing higher base royalty rates. Royalty revenue in 2003 from Nokia could be in the range of $80 to $90 million, while royalty revenue in 2003 from Samsung could be in the range of $20 to $24 million. Why the decrease from 2002? Well, the 2002 projections are based on calculations of the royalty obligations at the undiscounted base royalty rates. The 2003 revenue projections take into consideration prepayment discounts.

So, from the cash standpoint, we estimate we could receive 300 million to nearly 370 million dollars from Nokia and Samsung if we just combine 2002 royalty obligations and initial royalty prepayments for 2003 and 2004. We also could receive additional royalties from Nokia and/or Samsung after exhaustion of their initial prepayments for 2003 and 4 royalty obligations, and royalties related to 2005 and 2006.

From an accounting perspective, we will not record revenue associated with Nokia and Samsung agreements until all elements required for revenue recognition are met. We will, however, make appropriate disclosures to keep current and potential shareholders apprised of the potential impact these agreements could have on the company.

Before I close, I'd like to emphasize the point that our board and management have focussed on building a business that creates value by generating substantial cash flow over time. We believe we have taken a major step forward in that regard, with the signing of these agreements with Ericsson and Sony-Ericsson. If you take what I've just covered, the potential, aggregate cash flow from Ericsson, Sony-Ericsson, Nokia and Samsung in the next twelve months could conceivably be 360-430 million dollars with additional upside. Those are impressive numbers!

That concludes my prepared remarks, and I'll now turn the call back over to Guy Hicks for questions.

GUY HICKS: Thank you, Rich. Sheika (ph), we're now prepared to take questions if we could open up the line for questions.

OPERATOR: At this time I would like to remind everyone if they would like to ask a question please press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Tom Carpenter with Hilliard Lyons.

GUY HICKS: Tom good afternoon.

TOM CARPENTER, ANALYST, HILLIARD LYONS: Good afternoon. This is a very very good way to start off the work week.

HOWARD GOLDBERG: We think so also.

TOM CARPENTER: It must be satisfying to settle the 2G dispute with Ericsson and also have the framework for Nokia and Samsung in place there.

HOWARD GOLDBERG: It certainly is, Tom, this Howard and it's a really good feeling at this time because as I said in the prepared remarks, we put ten years of history behind us and in working through to this resolution it really establishes a new type of mindset, a new type of relationship as a basis to move forward.

TOM CARPENTER: Right. When we look at some of the major air interface (ph) standards for 2G, it looks like you guys are about every major handset manufacturer, outside of one in Schaumburg, license for CDMA, GSM, GPRS, you know, some of the standards in Japan, PDC (ph) and PHS (ph). Can you guys give us an update from your efforts on CDMA on - for 2G, and also the outlook from CDMA 2000 1X. For 3G, if you guys can talk about some of the efforts with some of the big players there, such as Samsung, LG, and possibly even at some point Motorola.

HOWARD GOLDBERG: Well, we've certainly enhanced our patent portfolio, which already had addressed that area. But with the acquisition of rights from (inaudible), we certainly enhanced that portfolio. And we're inactive discussions, Tom. We see that CDMA2000 as a - what really is the 2.5G technology is gaining appropriate traction in the marketplace, just as GPRS is in the GSM camp.

As you can imagine, we've put quite a bit of effort into these activities. And we made this a first priority. But we certainly intend to move ahead with both our UMTS licensing activities and our CDMA2000 licensing activities. And of course you know that many of the players are principal players in CDMA2000, such as Samsung, (inaudible), Sanyo and others are existing licensees of InterDigital in other areas.

They're companies that we know well, companies that we have working relationships with. And a little bit of patience will go a long way in this area.

TOM CARPENTER: OK. When we're looking at WCDMA, given the pace of some of the licensing agreements in the second half of last year and the first part of this year, you kind of got the feeling that a lot of other licensees or potential licensees are waiting to see how the chips would fall with Ericsson and maybe even what happened with Nokia and Samsung. Do you think this is going to enable you guys to do a full (inaudible) the rest of the year and have a lot of similar agreements, but more so on the 3G side, now that the Ericsson thing is behind you and it looks like Nokia and Samsung are on its heels?

HOWARD GOLDBERG: The opportunity certainly is (inaudible). We looked at all the good reasons to do this agreement. We certainly saw that the dynamics of settling with Ericsson would be a marketplace accelerator. There is a recognition of the importance of InterDigital's inventions that are associated with this.

There is certainly a recognition that InterDigital is becoming an ever increasing choir in the marketplace, both from a licensing point of view and a technology point of view. There is a momentum shift and certainly a recognition that if it wasn't clearly understood before that we had the staying power with the nice clean balance sheet that we had, the nice substantial cash position, an ever increasing position, and stronger yet increasingly stable position, means that we have to be dealt with in terms of licensing. And as part of the quid pro quo to the industry, we're going to endeavor increasingly to continue finding additional means to deliver value through technology.

So we think it all fits together and it all will become a momentum play, and we look for accelerated rates of success in 2003.

TOM CARPENTER: Right. Howard, can you give us a feel for -- and base this on several things such as the number of patents you have, the number of patents you applied for, and the number of patents that you have in some of the proposed standards, can you give us a feel for the strength of your patent portfolio in 3G versus 2G?

HOWARD GOLDBERG: We really -- we haven't published that, Tom, but let me just talk generally about the fact that our patent portfolio is in the multiple thousands when you look at the patents that have actually issued and the patents that are in the process of prosecution. The reason that you...

TOM CARPENTER: Is that 2G and 3G combined?

HOWARD GOLDBERG: Yes, it's 2G and 3G combined, but the reason that you talk about it that way is recently patent conventions became more prevalent, and you file one patent application and then later on you decide which countries you're going to actually prosecute those patents in. But in contrast between 2G and 3G, 2G is something that we developed in the mid 1980s. We've enhanced a little bit, and we're going to continue to focus on activities to acquire additional 2G IPR such as we move forward, but 3G is where we have momentum. We're developing patents and increasing rates of invention, which is very important to understand.

And I think a very critical differentiator is that in the 2G marketplace, InterDigital has the GSM technologies, we're going through the process of standardization and then roll-out. We were not a strong organization at that point in time. We were a small organization, we weren't participating in the standards bodies outside of the U.S. direction, and we kind of watched from the sidelines at the beginning of the 2G rollout. As we approach 3G, we're getting stronger in every important respect, financially, participation in the standards as an architect of the standards, the size of the patent portfio is growing and growing at an increasing rate and increasingly we're getting validation as a holder and licensor of technology.

So there's clearly points of differentiation. The compare and contrast is almost different in every respect and better in every respect when you look at InterDigital in the 3G -- the beginnings of the 3G environment, as opposed to the beginnings of the 2G environment.

TOM CARPENTER: OK, that's great. If you can give us an update on the patent portfolio in the next couple of months on the 3G side, that would be fantastic.

HOWARD GOLDBERG: We're working towards yield methodologies that we'd be confident in publishing.

TOM CARPENTER: I've got two final questions and I'll let some other folks get on the call. In the release, you talked about there's a period of review and negotiation and dispute resolution with regards to Nokia and Samsung. Could you give us a ballpark idea of the timeframe on that. Is that Summer 2003, end of 2003, for the period of review?

HOWARD GOLDBERG: Let me lay out how it works, Tom, and I'll answer your question. There is a period that is specified in terms of a specific number of days that I'm not at liberty to divulge, but as you can imagine, what we agreed on was a commercially reasonable period for review and discussion that is narrow enough to accommodate our needs and expansive enough to accommodate the needs of the other side. It is not a tremendously long period, and then after that if in fact we do not reach a resolution, and that's an IF at this point in time, we believe that the terms are pretty clear and we will have to see what happens in that discussion, but if need be, arbitration will be the means of having a neutral party to sign which party is in the right with respect to any opposing positions. If we were to go that far, it is possible that the final terms would not be set in 2003, but instead would fall over into the 2004 period. If we don't get engaged in an arbitration process, it would be the case that the rates would be established, and everything triggered from the rates would occur in 2003.

TOM CARPENTER: OK, I've got one final question for Rich. Rich, with the payment from NEC that came just after the end of the quarter, that took your cash position to just under 100 million, is that correct?

RICH FAGAN: Yes.

TOM CARPENTER: OK, so in the next twelve months you've got, what is it, 60 to 65 coming in from Sony and Sony-Ericsson?

RICH FAGAN: Yes.

TOM CARPENTER: OK, so that's 160-165 if you're, I think your estimates before would at least be cash flow neutral in '03 before the conference call today?

RICH FAGAN: I'm not sure what--we didn't provide guidance at the last.

TOM CARPENTER: OK. I wasn't sure if you should be at worst neutral to a slight positive on cash flow this year. But getting back to that, you take the 100 and the 60-65 million and some of the other numbers you threw out for Nokia and Samsung, that they elected (ph) you from the prepaids and also their '02 obligations. Some of those numbers you throw out, Rich, based on your current cash position, that adds up to something like nine or ten dollars a share in cash. Is that correct?

RICH FAGAN: It's a significant number, Tom, I won't disagree with you there.

TOM CARPENTER: If that was true, and based on your current market price, that would be a lot of cash to have there. I guess my question that you guys can address going forward, some of the uses, you mentioned some of the uses on the call, but that's a fairly substantial cash position for a company.

RICH FAGAN: Sure, sure, I'll let Howard jump in here because I know he's got some falk on it (ph).

HOWARD GOLDBERG: We certainly realize that it's a significant amount of cash and we are looking to deploy that cash in a manner that substantially builds shareholder value through the right type of choices that can provide very positive returns on the cash.

We've spent a lot of effort negotiating this agreement. As we've done so, we've thought in parallel about this very day, hoping that we have to reach these types of issues. But we haven't worked them fully through a process of integrating them into a strategic plan and then seeking board approval and rolling it out publicly. I would say that certainly we look to strengthen ourselves through the acquisition of technology and IPR (ph).

As we go forward, I would say that the (inaudible) type of agreement is an example of the type of opportunistic situations that we will face or that we will dig up. And it is something that additional cash increases the opportunities (inaudible). We will look to increment the company's opportunity through the availability of our additional strengths, including the additional cash position. And we're not going to think narrowly. The nature of the new types of free cash flows that could and should arise from this agreement are such that we can look to an expansive set of opportunities to build shareholder value.

TOM CARPENTER: Thanks. That's fantastic. And I just have a follow-up to one of your questions. With the dispute with Ericsson, Sony Ericsson, was just in regards to 2G, I think some of us were hoping to see an NTS (ph) deal or other forms of 3G deal in the licensing agreement. I know that probably would have taken some more time. But is that something you guys are concretely working on with Ericsson today to work out a 3G licensing deal?

HOWARD GOLDBERG: Tom, we're very focused on what is included, as well as what is not presently included within the scope of the Ericsson and Sony Ericsson license agreements. We have established operating protocols with them. They certainly understand that situation and they understand that InterDigital is going to be around for a while.

But, more importantly, we're developing a framework of trust and a framework of - a relationship framework and the ability to talk through issues, as opposed to what we faced in the past. So we took the clear decision to resolve the issues that were under litigation. Which we had a mandate, we had certain pressures to do that, and we wanted to be able to resolve that issue first.

Having done that, I believe that there is a positive framework going forward. And with a company that has a lot of integrity. And I believe that in this new environment going forward, we will be able to resolve those issues.

TOM CARPENTER: Well that's good. Well, thank you for the update, and congratulations on persevering on this issue.

HOWARD GOLDBERG: Thank you, Tom.

UNIDENTIFIED CORPORATE PARTICIPANT, INTERDIGITAL COMMUNICATIONS CORPORATION: Thanks, Tom.

OPERATOR: Your next question comes from Eric Miller (ph) with Hartman Advisors (ph).

UNIDENTIFIED CORPORATE PARTICIPANT: Hi, Eric (ph). Welcome to the call.

ERIC MILLER (ph), HARTMAN ADVISORS: Yes. Congratulations, guys. It's been a long journey.

Just two questions. For Rich, on the $34 million payment from Ericsson, now, since that was '02 and you've got a definitive dollar amount, will you be restating your '02 since you haven't filed the K?

RICH FAGAN: No, we won't, because the accounting rules these days say that the agreement and the definition of it was not signed until '03. So it'll be prospective.

ERIC MILLER (ph): So it'll be prospective, OK. And then, Howard, obviously with the cash in that long -- in that discussion you just had, do you have any timeframe when you might sort of be sharing with shareholders some of those thoughts that you guys have been thinking about here?

HOWARD GOLDBERG: This has happened very much in real time, and we're going to have a board meeting in the near future and one of the things that we're going to talk about is the next iteration of the strategic plan. So I would not want to preempt the board discussion, but I would just say that this is something of paramount importance to the company. If you're faced with the prospect, the very, very good prospect ...

ERIC MILLER (ph): Yeah, it's a nice problem to have.

HOWARD GOLDBERG: Yes, very different from the days when I joined InterDigital and we were selling Ragas (ph) stock overseas to meet payroll. We've come quite a ways from those days. Now we're facing the prospect of substantial free cash flow, and we are going to act with all haste, but in a prudent manner, because we certainly don't want to have loose change jingling in our pockets and feel so compelled to rush to investment decisions that we make the wrong decision. So it'll be that type of classical balancing considerations until we find the right model that we're comfortable with, and one that we believe can provide superior returns with appropriate commercial risk, not inappropriate commercial risk.

ERIC MILLER (ph): I assume all options are sort of on the table, whether they be for acquisition share repurchases, dividend to shareholders, that type of stuff?

HOWARD GOLDBERG: I would say that the board has a fiduciary responsibility to consider all options, and it's something that we do when we meet. And as we go through those options, we'll make decisions. We'll apply judgments as to the potential best returns and creation of shareholder value.

ERIC MILLER (ph): Sounds good. Thanks.

RICH FAGAN: Thank you.

HOWARD GOLDBERG: Thank you, Eric (ph).

OPERATOR: The next question comes from John Bucher at GKM.

JOHN BUCHER, ANALYST, GERARD KLAUER MATTISON: John Bucher with Gerard Klauer Mattison.

HOWARD GOLDBERG: Hi, John, how are you?

JOHN BUCHER: Congratulations on concluding your agreement with Ericsson.

HOWARD GOLDBERG: Thank you.

JOHN BUCHER: In your introductory comments, you mentioned Samsung and you mentioned CDMA2000 1X. I'm just curious from that reference, is it the company's opinion that the licensees -- users of CDMA2000 1X technology may need an InterDigital license?

HOWARD GOLDBERG: John, we have taken that position going back a while ago, that we have IPR in the form of patents and/or patent applications that is essential to all of the 3G standards. And 1X is part of the 3G standards, and we've rolled out a few license agreements at the beginning of our activities. That includes that standard, so certainly others have examined. We've gone through a normal commercial process of weighing out our patents and claim charts, and others have examined this situation and included that they would require a license agreement from us.

JOHN BUCHER: So that's notwithstanding the 1994 agreement with Qualcomm if some of these CDMA2000 1X equipment suppliers have an agreement with Qualcomm, then it's your intention that they may need an agreement with you?

HOWARD GOLDBERG: John, that 1994 agreement has increasingly narrow impact. Certainly there were, within the scope of the cross-license, it accomplished some of the then important patents that InterDigital held, but the cutoff date was for 1995 as far as early in 1995 as far as included inventions and InterDigital has done a tremendous amount of work since that period of time and a lot of inventive work that has collectability (ph) to CDMA2000, as well as acquiring certain IPR (ph).

JOHN BUCHER: Is it possible that you might make available to investors a white paper or a descriptive summary that just describes what parts of the technology in CDMA2000 1X that you believe falls outside of that 1994 agreement and that falls inside your scope of intellectual property?

HOWARD GOLDBERG: That's something that I will discuss with Bill Merritt and we'll see if it's something that we would feel comfortable with. Normally we don't engage in parallel negotiations in the sunlight but I'll discuss that issue with him and see if he is comfortable with it.

JOHN BUCHER: OK, I think that would be very helpful. And then, finally, I know that you mentioned in the call earlier that you had just about all of the major PDMA/GSM equipment suppliers now covered with this agreement. Could you just review for us the wide-band CDMA license agreements that you have, the equipment suppliers that you do have wide-band CDMA licenses with?

GUY HICKS: Sure, John, this is Guy. Let me go through those and I'll have Rich and Howard either add to it or add color to that. We previously announced that we have a 3G agreement with Infinium (ph). (inaudible) Nokia. Over the last 18 months we've also signed 3G agreements with Sharp, with Matsushita, which operates under the brand name of Panasonic, also with NEC, Japan Radio Corporation and then most recently with the smaller manufacturer Hoppon (ph) and also with Pantivia (ph), part of the broader agreement that Howard referred to earlier.

JOHN BUCHER: OK, great, that's all the wide-band CDMA agreements that you have to date?

GUY HICKS: Right, 3G licensees, correct.

JOHN BUCHER: OK, super. Did those agreements also include CDMA2000 1X? Is that within the scope of those agreements?

GUY HICKS: Depends on the particular agreement.

JOHN BUCHER: So each is individually negotiated, then.

GUY HICKS: Yes, that is correct. And that's our pattern.

JOHN BUCHER: OK, fantastic. Like I said, I would welcome disclosure from the company if you can do it on those specifics of the technology that you feel you all have claim to on CDMA2000 1X and congratulations on your agreement with Ericsson.

GUY HICKS: Thank you, John.

OPERATOR: Your next question comes from Scot Robertson with Investec.

GUY HICKS: Hi, Scott!

SCOT ROBERTSON, ANALYST, INVESTEC: How are you doing, guys? How are you doing, Howard and Rich?

RICH FAGAN: Great, thank you.

HOWARD GOLDBERG: Very good - thank you.

SCOT ROBERTSON: Excellent announcement today. It's going to be nice to see that I can finally take my sensitivity analysis and actually put it into the model. A quick question on Ericsson. Are you offering the same type of prepayment discounts if they do the big prepayments that you're offering to Nokia and Samsung?

HOWARD GOLDBERG: Actually, it's the reverse, Scot. The agreement with Sony Ericsson has the prepayment discounts, and by virtue of the fact that (inaudible) Nokia and Samsung agreements take reference to that agreement.

SCOT ROBERTSON: OK.

HOWARD GOLDBERG: So you get that. But, as I mentioned in the call, the first is mandatory. And then thereafter, they're optional.

SCOT ROBERTSON: The first of the two year (ph), you said?

HOWARD GOLDBERG: They're always 24-month increments, unless they're toward the end of the agreement period.

SCOT ROBERTSON: OK. And you think that they definitely will exhaust the prepayment that they put up there before the end of that 24 months?

HOWARD GOLDBERG: Based on the numbers that I just spoke of, it's our belief that, if they work at the market share that they've had at present, that they are conservative numbers.

SCOT ROBERTSON: OK. And just one cleanup question. I know you've restated your numbers - or your restated your numbers the other day for the last quarter, higher licensing revenues (ph). Can we get an indication of who that came in through? What was higher than you had thought, which agencies (ph)?

RICH FAGAN: I'll make two points, Scot. One, we didn't restate; we revised.

SCOT ROBERTSON: Revised. Yes, revised.

RICH FAGAN: Because we haven't filed as yet. They're are Japanese licensees, but we don't review who the specific licensees are. But they're a couple of our Japanese licensees.

SCOT ROBERTSON: So it was more than one?

RICH FAGAN: Yes.

SCOT ROBERTSON: OK. All right, thank you.

RICH FAGAN: Thank you.

HOWARD GOLDBERG: Thank you, Scott.

OPERATOR: Your next question comes from Roger Young (ph) with Young Asset Advisors (ph).

ROGER YOUNG (ph), YOUNG ASSET ADVISORS: I have several unrelated questions. What will be your trend of legal expense going forward? And two, in that regard, what is the impact with the (inaudible) with this agreement?

The second question, what's your current headcount and where is that going? Third question, could you briefly review the shark (ph) repellant you put in place about four years ago?

HOWARD GOLDBERG: We'll take them one at a time. Let's start with number two. Our current headcount is approximately 300. And we had indicated in our last conference call that we anticipated maintaining around that level.

RICH FAGAN: For the foreseeable future.

UNIDENTIFIED CORPORATE PARTICIPANT: Let me pick up on one. You're correct, it was a Texas law firm that represented us. But that was (inaudible) and Jaworsky (ph). So I just want to correct that, because I want to take this opportunity, if they're listening in - but certainly for the benefit of anyone that might be listening in - to commend them for their dedication to us and their devotion to this case, and the wonderful, wonderful job they did. They've been an exemplary partner with us going through this case.

I think your question went to the fees, and their fees are paid. We've had an insurer involved in this case, and we have an obligation to them. The obligation will not be material in relation to the proceeds that we've outlined.

HOWARD GOLDBERG: And then you asked a question in regards to shark (ph) repellant.

ROGER YOUNG (ph): Yes.

HOWARD GOLDBERG: I guess that was the share...

GUY HICKS: Do you mind repeating that question?

HOWARD GOLDBERG: Yes, define that a little bit more for us if you can.

ROGER YOUNG (ph): There was a - there's a super majority voting or something in that regard that was put in place three or four years ago.

HOWARD GOLDBERG: Yes, yes, nothing has changed under our bylaws. Our bylaws remain just as they have been.

ROGER YOUNG (ph): OK. If there was -- are you specifically asking about the poison pill, or something broader, because the Pennsylvania BCL (ph) layouts for super majority and other type of provisions, and we've been fully in conformance with the provisions allowed by VCL (ph) have seen no reason to make any changes in that regard.

RICH FAGAN: Thank you, Roger.

OPERATOR: For additional questions, please press star, then the number one, on your telephone keypad.

Your next question comes from Robert Vesman (ph) with Bentley Capital.

HOWARD GOLDBERG: Hi, Robert.

ROBERT VESMAN (ph), ANALYST, BENTLEY CAPITAL: Yes, good morning, congratulations.

RICH FAGAN: Thank you.

ROBERT VESMAN (ph): Are there -- in terms of what Howard was saying earlier, I'm just wondering if he'll amplify on that a little bit. He made a statement that's considerably more optimistic than he's ever made in the past, and the indication was we'd see accelerating license agreements this year. Is there anything more you can add to that comment?

HOWARD GOLDBERG: No, there's nothing -- there's no hidden agenda underlying that. We have a group, our licensing group, that has been diligently pursuing opportunities. They have -- they've been in discussions with multiple companies. You know, sometimes you push against the tide and it's real hard to swim against the tide and the tide that we've been pushing against for the last year and a half or so was a very unstable marketplace in telecom, as well as a sort of deadlock in your freezing effect of the Ericsson litigation.

I think that things are starting to reverse in both directions. When we came back from the 3GSM congress in Cannes, we saw a rising optimism concerning 3G. That's not going to be a magic pill. It's not going to happen right away, but the companies participating feel that it's under control. The interoperability issues are being addressed, the operators are starting to reorder their finances, and this is going to come together in due time. So there's a positive atmosphere out there with respect to the environment. The issue of Ericsson uncertainties hampering licenses has been removed and we believe turns into a positive.

And now it's subject to all the usual caveats, because licensing is a process that you never have clarity on until the deal is finally signed, but the dynamics are right for the progress to accerleate. We're creating the right type of momentum, the marketplace is starting to cooperate with us, so we have a basis to believe that there will be accelerating impact going forward.

ROBERT VESMAN (ph): Let me ask you a follow up on that. Is this a watershed event in the sense that this is a number of companies who potentially have been waiting back to see what was going to happen with Ericsson to make any agreement to see whether they could possibly get out of it. And now, the credibility that you've gained through this Ericsson agreement will now wipe that away and create a totally different bargaining environment.

HOWARD GOLDBERG: I think you've encapsulated the dynamics. I believe that some period in the future we're going to look back on this and say with certainty that it's a watershed event. As we sit here today we can only, it's only conjecture but it's the right dynamics. It certainly feels to us like it'll be a watershed event.

ROBERT VESMAN (ph): OK, congratulations again.

HOWARD GOLDBERG: Thank you.

OPERATOR: We have a followup question from John Bucher with CKM.

JOHN BUCHER: This is a question involving modeling. Not understanding completely your prepayment schedule, it looks like for modeling purposes for the 2G handsets for Samsung that somewhere between 50 cents and a dollar per handset. Can you give some sort of modeling input to us here?

RICH FAGAN: John, this is Rich Fagan. We traditionally don't disclose the actual rates or per unit, for commercial reasons, I'm sure you can appreciate that. But I think we've disclosed enough in terms of the numbers that I just read that it can give you a sense by looking at the market share and units that all the buyers (ph) have had in 2002 and what reasonable projections show them getting in 2003.

JOHN BUCHER: OK, and for the Nokia that would include GSM as well as TDMA phones, albeit TDMA being a much smaller percentage.

RICH FAGAN: That's correct John.

JOHN BUCHER: OK, thank you very much.

RICH FAGAN: You're welcome.

OPERATOR: At this time, Sir, there are no further questions.

HOWARD GOLDBERG: Sheika, I would like to address one issue that has been raised to us by a number of people. And that is, what happens in the post 2006 environment under the existing license agreements at 2G and 2.5G licensing agreements. Let me say first that the agreements were negotiated to cover a normal commercial terms, which generally runs for 5 year periods. So this is pretty consistent with usual type of agreements. And then you have a reopener for negotiation. In the period that then becomes open for negotiation there are opportunities for InterDigital to realize additional 2G and 2.5G licensing revenues based upon the incremented patent portfolio. The patent portfolio enhancements that we get going forward from today.

Having said that, I would like to focus everyone on a very central issue, which is, if you read (ph) in the press release that a handset includes 3G functionality, then it's not licensed under this agreement. We're not licensing piecemeal a handset having 3G functionality would be licensed under any separate 3G agreement that we may enter into with Ericsson. While we don't have transparency on a post-2006 marketplace, it's our view that the infrastructure market for 2 and 2.5G in a post-2006 will be very small, if existent at all, and it probably will exist to a very small degree. It will be primarily 3G infrastucture in terms of new deployments. And we believe that the terminal devices will almost universally, at that point in time, have 3G functionality.

The addition of the additional mode, it will be well integrated. The delta (ph) cost for the additional mode will be very small at that point in time. And we believe that for sake of uniformity of manufacturer, as well as coverage for the individual consumer, that everyone purchasing a handset will want 3G functionality at that point in time, which puts it under a new license agreement. So I just wanted to offer that input and clarify those points.

GUY HICKS: (inaudible), thank you very much.

We appreciate all of you joining us on the call today. And thank you for particularly on what was relatively short notice. But we're glad that you could spend the time with us this morning.

Thank you.

OPERATOR: Thank you for participating in today's conference call. You may now all disconnect.

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