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Loop - Very well written, I agree.
I do not know how to title my last chapter in my book. It is a toss up between "TOO MUCH, TOO SOON" and "TOO MUCH, TOO LATE". The actions of the company and the reactions of the sector will help me decide. It will be a modern day version of the "The OLD MAN AND THE SEA". Having travelled the IMMC, IDC, IDCC roads for a majority of my adult life, the I now understand the genius of Hemmingway who I was forced to read in my youth. The changes in the business plans and the legal settings to be determined on the horizon have totally changed my mindset regarding my prize fish. If a larger fisherman appears on my journey home, I am ready to sell my trophy fish and I would have bet my self big money against that happening for well over 20 yeaqrs. The very idea of believing that a company could suddenly create a series of production lines and compete with existing chipmakers with any positive margin during the first 3 years sends cold chills down my spine. Couple this bizarre belief with the possibility of reduced royalty for even embarking on a start up and unproven manufacturing program is activating the sweat glands in my forehead area. Fortunately, I believe that Harry and the BOD will come to their senses and keep the company in the design and royalty business plan after they weigh all of the options with the expected results. However, having followed the life of Hemmingway, I will give all of my shotguns to my nephews before my book is published LOL.
Have a good one.
MO
loop
Dish, thanks for the follow up
Count and Loop, talked to Janet this afternoon about the chip and related royalty issues.
First of all, InterDigital is still working on integrating 2G and 3G, samples will be available late summer. Meanwhile there is a marketing effort - the samples will go to prospective customers for their testing and integration.
I asked if we would have to license other's technology for the chips. She said we might have to license technology beyond the baseband, like power amplifier, microprocessor, or (something else). She wasn't very definite on licensing requirements, but said we are respectful of other's IPR.
Then I asked about cross-licensing with, say, Qualcomm. Janet said that may also be necessary - but no clear answer.
I asked if the chip would be a positive or negative to our licensing efforts. Janet said it could be a positive - there's a possibility of combining chip sale with licensing agreements.
Please do not take my comments verbatim - I am no techie. But my conclusion is that chip sales will have no negative impact on licensing, and, indeed, may be positive.
I am not at all worried about cross licensing with Qualcomm - they don't owe us tons of royalties. It is the Nokias of the world that should be paying us large amounts of royalties that concern me. I will give Janet a call Wednesday and follow up. However the big question - Will manufacturers be able to negotiate a lower rate on our IPR due to cross licensing required by IDCC chip sales? - almost certainly does not have a concrete answer or one that she would discuss. But it doesn't hurt to ask.
Frank
Loop, excellent post
I am very concerned about IDCC getting into manufacturing and changing from a tax collector to a competitor that must cross license. The relative sales of our products would be minute compared to sales of products that use our IPR, so if cross licensing means we have to take a reduction in our IPR rates we could win the battle (hurray, we are a profitable manufacturer) and lose the war (IPR licensing rates reduced).
I'm sure management has taken this into account, but it is a potential trap. If Nokia can sue IDCC under the Latham Act, and binding arbitration can be challenged and unresolved for months on end, I shudder to think what they could come up with regarding FRAND in a cross license situation.
Thanks Ed, I appreciate the info.
Ed - Have you read any of them?
If so, I'd value your opinion.
Did you actually read any of those patent applications?
What's IDCC's plan for licensing their products?
If we bring product(s) to market we will need to license. I'm wondering how easy that is going to be. Are companies like Nokia going to insist on cross licensing? Can we license their IP on FRAND terms and pay them for what we sell, and have them license IDCC IP on the same basis? This is not a rhetorical question - does anyone have any insight on how others have done this, like QCOM. Do we need to set up a subsidiary for products? Never heard this discussed by management and I'm curious about how this will play out.
IDCC buying back at these levels
If IDCC is temporarily propping up the price with the buyback, it would make sense to step away for a little bit and let the price come to a lower level where they can pick up more shares for the same money. The risk is that they sign another major license before they finish the buy back. I trust the company and their agents have a plan of action for different price levels and are doing what they think is best to acquire shares as quickly and cheaply as possible.
Connecting the dots is the purpose here
The idea is to see what's coming before the news hits to maximize investment return. Otherwise what's the point?
Some folks take four dots, connect them to see a square and project the potential for a cube. Realistic and useful in planning of the future.
Others are inspired to think outside the box and construct multi dimensional bridges to get to where they invision, taking an incredible leap of faith. A fun fantasy but not something to use to guide your investment actions. (See MickeyBritt)
Spot on again Brad.
revlis .. Of course you know there is no reason that the price should go up after a stock split. Investors still pay EXACTLY the same price for a given percentage ownership in the company.
There was a time when individual investors thought that it was cheaper to buy into the company when it split but I think the sophistication level of most individual investors has gone well past that. I'm not suggesting that everyone should adopt Buffet's approach but I don't see any value in splitting stock at low levels, say under $100.
Why are we "stuck" at 35?
I think Danny D hit the nail on the head.
kikober .. I believe the price has been driven up substantially by the institutional buying if you consider it relative to where the price would have fallen absent this demand on no significant positive news for 13 months.
As long as there is enough supply for any institutions still buying at 35 or less from those folks who don't have the same long term view as the institutions the price is probably not going to fluctuate too much up or down absent news.
I have been very pleasantly surprised by the strength of the share price when there has been limited progress over the last year. It appears there is a lot of money out there willing to buy IDCC under 35 with the market at these levels. Let's hope IDCC can sign another major before that well runs dry.
Nice post Loop - thanks.
Bulldzr, JimLur's board is just fine.
Some of us like to hear a range of opinions, even those that occasionally are (gasp) negative. Teecee has atomic bobs for those that want only optimistc posts from certified IDCC longs.
This is a pointless post, but since it's the weekend I'm going to post it anyway. I know the IDCC guard dogs are going to nip at the heels of anyone who dares to contradict the rah rah boys. But I'll tell you this, I'll take Olddog every time over mschere if you want solid, unbaised info on IDCC.
Jim/Dan, if anyone responds to this please just delete this post. I'm not interested in starting a food fight, but sometimes things on this board just make me want to scream and I can't help posting.
Frank
Thanks Ghors
I appreciate your looking at it from the point of view of the devils advocate. I'm glad that looking at it from that perspective you still see things being strongly on IDCCs side.
I like the recent developments:
* IDCC finally putting out the "bad cop" to balance their long standing "good cop" approach.
* IDCC putting out a very solid response and counterpunch to Nokia that looks quite compelling to this layman. Now Nokia has something to lose from continuing this farce.
* IDCC signing a 2G/3G license. Not major, but still it shows progress and further validation of the commercial worth of IDCCs IP.
Progress is slower than many have wanted and expected, but we are still moving in the right direction. This is a good week and should help establish a stronger base to propel IDCCs price when the big licenses come.
Don't hear promises that aren't there.
BM:
"I wouldn’t say that. I think that what we’ve said is we get the deals done based upon the right terms and to the extent that the deals happen later it’s more important that they get done right. So we’re pushing very hard on a number of fronts with respect to licensing. Whether we get additional deals done this year or they move into next year and I’m pretty happy with the progress being made by our patent licensing team. So we try while we always talk about trying to push things very hard and get these deals done and we tell people we are very focused on the top 5 or 6 manufacturers. We do try to make it feel it. Look it’s not important in the long run whether the deal occurs in the fourth quarter 2006 or happens in first quarter 2007. The important thing is that they get done at the right rate."
I don't have Olddog's ability to dig up stuff, but as I remember it, the next question was if Mr. Merritt was saying that there would be licenses signed by the end of Q1, and Mr. Merritt replied no - that he was saying that the terms are the driver, not the calendar. That's my recollection, but if anyone can pull the relevent part of the transcript please post it.
Waiting for the watershed
The wait is frustrating and taking years longer than I expected. That is a function of my expectations. Yes, it was based in part on management optimism, but it is my job as an investor to make my own choices based on all the info available. While I am disappointed that the licensing is progressing so slowly, it is progressing at a rate that keeps the share price rising. Excluding the bubble, the price is withing 10% of the all time high. There are far worse scenerios. So when you get frustrated by the wait you may want to calm yourself by counting your profits to date.
At some point the street is going to start to show concern about the ability to monetize IPR and the price will start to slide. I'm hoping we can sign the next big license before that happens. However there is risk if there is no license soon. So be cautious with your investment profile. You can't control how IDCC executes but you can control how much you're willing to risk. That's the investors choice and you live with the results. Good or bad, it's on the investor.
Whisseresq, thanks for your thoughts.
As a layman, the sanctions seem inconsequential to me. I'm glad you feel that it evidences a serious rebuke of Nokia as you are much more experienced in these matters. I appreciate your sharing your knowledge here and addressing my concern.
Pat on the back, not slap on the wrist
I would imagine its tough to tell your client that the client has to pay the other side's legal fees because you failed to follow the rules.
Unless the legal minds here are all delusional, it is obvious that Nokia's action has one goal, which is d...e...l...a...y. They accomplished it with their actions at the deposition.
The lawyers tell Nokia "We're going to the deposition. Give us someone who has limited knowledge and can give non-responsive answers for hours on end. We will stonewall it. The judge may force us to repeat the deposition later, get it, LATER. The cost? Legal fees for us and maybe the other side. Pretty cheap to further delay this process. The judge may scold us (the lawyers), but we're happy to take the bullet for you." I don't think Nokia is at all upset with their legal team.
It's a shame that these tactics are able to succeed.
Options and leaps are very risky
IDCC has explosive potential. If there is ever a watershed event that results in multiple big 5 manufacturers signing over a short period the price will skyrocket, and option/leap holders will have sucessfully leveraged their investment and made a killing. However options and leaps expire, and if the news does not come until after your timeframe expires you lose. Even if the stock performs reasonably well you could lose 100% of your investment on out of the money options. In addition the premiums on IDCC options are very high as the option sellers know the potential is there and so they charge accordingly.
For example, a few years ago I thought Krispy Kreme was exceptionally overvalued and played some put options. I kept recycling my options every three months, but the stock stayed at the lofty levels. I finally quit after losing quite a bit. Six months later reality set in, the stock quickly fell about 50%, and continued to fall to about 20% of its prior value over the following six months. I was right about the stock, but lost everything I put into it because my timing was off.
I have taken a very aggressive position in IDCC, but I would strongly advise anyone to be very cautious with options and leaps and use only high risk investment funds (funds you can afford to lose). I have played options a few times, won some, lost more. While you are probably smarter and a more astute investor than I am, you also have to be lucky. So don't let greed push you to gamble with money you may need for retirement.
mschere - question for you
Do you really think that the street is using the GAAP earings and applying a multiple of 8?
I don't. I believe they are using recurring earnings and expectations of earnings growth in the future and using those earnings and cash flow to arrive at a valuation. This opinion is based on the empirical evidence which shows that IDCCs PE ratio fell dramatically when the settlement from Nokia was booked and on the reading of the valuation portion of the analysts' reports. I fully expect IDCCs PE to rise when the Nokia settlement is no longer a part of the trailing 12 months, even though the share price will remain relatively stable.
Question..While IDCC's multiple is currently 8X trailing earnings..what multiple do you think the Street will place on IDCC's earnings when they license ONE of the four leading OEM's such as Motorola, Nokia, Sony/Ericsson or Samsung for 3G?
To answer your question, I expect a multiple of 20-35 based on the criteria above. The current 8X trailing earnings has no relevance. The good news is that when IDCC signs the leading OEMs, the E(arnings) will go up along with the earnings expectations as uncertainty will be removed and it will increase the probability of signing the other big players.
IDCC is a compelling story and there are many reasons to invest in it. There are a number of potential catalysts to propel the stock price. While you don't make a statement, you just "ask questions", the questions are framed to lead readers to jump to some very erroneous conclusions. There is no reason to do that.
Frank
Rooting for or against LG
I would prefer it if LG lost market share, even down to zero. We'd still have their money, and then could get paid more by the other manufacturers who took their share. Double royalties!
You are exactly right, however those that disagree with you also have a point.
There are two ways to look at LG - one is thinking with your wallet. Since they are paying a fixed amount (there is disagreement on the threshold issue, but we can all agree it won't be lower than $285 mil), IDCC earnings will not be hurt if LG sales fall. Also when negotiating new licenses LG will be a benchmark. The more they sell the lower the effective per unit licensing rate is. That could affect how much we can charge under the non-discriminatory part of FRAND in future licenses. So from a selfish, what is best for IDCC standpoint, any LG sales in excess of the amount needed for them to be solvent enough to pay the last two installments are not good for IDCC. While we are not currently getting paid for sales by the other big five, the expectation is that past sales will be counted and paid when we do license with them. So for the purely greedy standpoint, having LG struggle would help with future earning potential.
However, there is another, quite different view that many have. LG did the right thing. They stepped up and acknowledged their responsibility to pay fair royalties and entered into a contract with IDCC. They deserve our respect and support for being upstanding corporate citizens. Further, if LG were to struggle while the unethical foot-draggers prosper it would send a bad signal out to the corporate world. Seeing LG have great success will be gratifying from a "do the right thing" and "wishing the best for your friends" standpoint.
I believe there is validity in both views. Both conclusions can be supported depending on what your investing premise is - either maximizing profit however possible or making money in a fair and just system and being loyal to your friends. Which side am I on? Well, I am kind of in the middle. I don’t want LG to zoom to market dominance, nor do I want them to fall on hard times. Let’s just say I’ll be very happy to one day get the call that IDCCs price has hit triple digits on my LG phone and call my wife and kids on their LG phones.
Frank
Catchnrel, we see things 180 degrees different
Regarding IDCC having a large cash balance making it a good buyout candidate, you said
That's another argument against dividends I hadn't considered.
But there are so many right now. What events would accelerate the stock price faster and further than a buyout offer? Damn few.
I'm not looking for a buyout offer to jump the price to 40 or 50 and be done. What events would accelerate the stock price faster and further? 3G Licences with the top manufacturers. Successful licencing could double or triple IDCCs price. So I'll continue to hope for IDCC return funds to shareholders through buybacks and dividends as they work through the difficult licensing process. You can root for them to borrow, aggressively pursue M&A opportunities and entertain offers from suitors.
None of us has any influence over what happens, so no harm done by sharing our opinions.
IDCC's PE ratio
While there is no arguing IDCC's PE is currently very low based on the raw numbers, the reason our price is at a low multiple of actual earnings is that we are being valued on our recurring earnings, which excludes one time lump sums received for prior years. This is partially offset by expectations of future earnings which includes some expectation of additional licenses. Reading the valuation section of the analysts reports supports this view. Therefore the actual PE for IDCC is not an important figure to the street because it is not representative of the long term earnings. Once we get licensing done and have a steady recurring revenue based on sales of our licensees, then IDCCs quarterly and yearly earnings will be very important to the valuation and the PE will be a useful benchmark.
So I'm sure Mr. Merritt is not viewing our equity capital based on the current raw PE of 8 that includes the Nokia payment.
Catchnrel - Re: Growing IDCC
I'd bet there are lots of ways [to grow their business], beyond aquisitions. How about a chip (and pronto)? Better PR? More parallel (rather than serial) licensing efforts/actions (think MOT?) Build alliances. More boots on the ground in places like China and India. Grease some palms. Be more aggresive. Whatever it takes.
You make a good point and give some good examples. However all the above combined (except a chip) would not put a serious dent in the cash flow. Also if IDCC did this, their efforts would be expected to result in more revenue before long or they wouldn't do it. This isn't like building a factory and recouping your investment over decades.
As for chips, I'm not excited about this. I love the "no incremental cost of sales" business model. Chips may prove to be a money maker or they may be necessary to facilitate licensing, but they add risk. There are many chips being produced by very competitive companies. It can be a cutthroat market and it will be tough to step in and be successful in that arena. Also will we have to license from others? I don't mind being called a tax collector - it's a great gig, as long as we can collect. Like I said, I love their current business model and hope they can get 3G licensed without having to move heavily into new ventures.
IDCC is a different growth stock
IDCC has an unusual business model. They don't produce products or sell from stores. Most growth companies need to reinvest their profits in their business to expand. IDCC does not have the same need. They have and continue to increase their R&D, but they are in the enviable position of having cash flow well beyond the needs of the business. The even better news is that when they sign additional contracts the cash flow will grow even more. Therefore there is no way to "grow their business" by spending money. The only way is M&A. If they find a truly complimentry company to acquire, great. I feel it would be counterproductive to buy another company just because they can and are desparate to grow. I am very nervous about big acquisitions, especially if they are financed. Even almighty Qualcomm had huge losses in the arena. I would hate to see IDCCs pristene balance sheet pile on debt for risky acquisitions. Growth will come from successful licensing and the increase in sales of licensed products.
Therefore once IDCC signs the next big license giving them really solid predictable cash flow they should declare significant regular dividends to distribute the cash. As income and cash flow grows, the dividend should follow. It will put IDCC on a whole new set of radar screens. I have to think having a dividend will help the price.
I love that excerpt - right on the money.
Thanks Jim. This excerpt from the 'RYAN' report is exactly why I am not sweating this bump in the road. No point in bolding anything. It's all good.:
Key Points
• We are lowering our 4Q revenue and EPS estimates for InterDigital to $62 million and $0.32 from $71 million and $0.42 based on the company's new guidance. While dissapointing, we do believe that InterDigital will begin to see sequential growth in recurring revenues in 1Q07 and will also see positive the resolution of outstanding litigation
with Samsung.
• Sell-off possible. If shares are sold on the basis of InterDigital's updated guidance, we believe it will create a solid entry point for investors to buy shares. We remain focused on resolution of litigation with Samsung and new 3G licensee deals as the key catalysts for InterDigital shares in
coming months.
• Product revenue opportunity may get boost from 3G launch in China. Yesterday, Chinese officials commented that the Chinese government could issue 3G licenses in the next two quarters. These officials also indicated that TD-SCDMA, a China-specific 3G protocol, is likely to be launched. InterDigital has a very strong intellectual property position and product position in TD-SCDMA. We view Chinese 3G and TD-SCDMA development as a strong positive for InterDigital.
• We reiterate our Buy rating and price target of $40. Our FY07 EPS estimate includes a large one-time payment, so we build our price target off our estimate for recurring EPS of $1.60 in FY07, which implies a valuation of 25x, a discount to the peer group of 31x.
Guidance is a good thing
DD, you stated
The only investors that our revenue guidance releases helps is day traders and shorts IMO due to the potentially large fluctuations between guided figures and final figures.
It helps or hurts trades based on which way they bet. It has no affect on long term shareholders (other than stress for those of us who are IDCC-aholics) because they are not trading and because it does not affect the long term price. What it does do is give all investors an indication of the company's expectations at that point in time. Like anyone, they will be wrong sometimes. I would much rather have them provide timely information, including future expectations, with the understanding that actual results will differ, sometimes significantly, then to have them always give use precise information after the fact.
As a long term shareholder, I have to say for me, the revenue shortfall was very minor news. 3G sales are slower than expected in Japan. Disappointing, but a very small part of what will drive IDCC's price over the long term. It will have very little long term affect on the stock price, unless this is not just a slow quarter in Asia but an indication of 3G not meeting expectations worldwide over the long term. I don't believe that is the case.
If there are investors worried about IDCC's ability to monetize its patents and the affect of that on its shareprice, then any break in the price can be a catalyst for those people to move to the sidelines. I'm not a technical guy, but it seems that 30 has been a fairly strong support area, so I hope it will hold now. I think it will as this news IMO is a one time thing and not an indication of long term issues.
Frank
Ghors, thanks for your legal insights
We are quite lucky to have so many experienced lawyers to help us understand what is going on with our investment. I guess my lack of legal experience is what makes me cringe at this statement of yours...
Some may see this as a broken system, but I see it as DUE PROCESS of law at its best regardless of time element.
I see so much of this as UNdue process - just legal posturing with a real objective of delay. Legal folk may appreciate the chess game that is going on, but as an investor who is not planning on leaving my stock to the grandkids, the time element is important. Justice delayed is justice denied. Like the civil rights cases from 40 years ago being tried in recent years, winning a case years or decades later is a victory, but it is hollow.
Let's hope Mr. Merritt and his crew can hook another big one in the near future and hopefully break the logjam and get contracts done with everyone without going through the legal process.
Good news, thanks for posting. eom
It must be the new math
We had 5 analysts, 3 buy (1) and 2 underperform (4), which translates to (3 + 8)/5=2.2
They add a new hold rating (3) and the others remain unchanged. By my calculations the rating is now (3+4+ 8)/6 =2.33
It doesn't really matter, but it bothers my simple accounting brain when I see an average rating of 2.2, add a new data point of 3 and see the average move lower. Mathematically impossible.
Cautionary thoughts from a disloyal untrue long
IDCC will not be able to sustain the present valuation unless it signs additional significant 3G licenses soon. I still believe it is more likely than not that there will be licensing activity in the next three months, but I’m not nearly as confident as I was in the first quarter of the year. I thought getting LG signed would set a benchmark that would establish a reasonable framework for the nitty-gritty negotiations needed to close deals. It apparently is not the landmark that I thought. The decision in the Samsung arbitration was excellent news. IDCC got a great decision, not the split the difference result I was expecting. That gave me hope that IDCC now had some bargaining chips to use to get a 3G license done with Samsung. Again, apparently not. So I’m back to my long time concern, which is that I don’t see anything to motivate manufactures to sign a license. The choice is to sign and pay now, or don’t sign and don’t pay now and maybe pay less later.
I still believe Mr. Merritt is a good person to be leading IDCC right now. I believe he is striving to get the deals done and that his focus is on the important issues. I hope he is able to meet his expectation of additional 3G licenses in 2006. If he doesn’t I’ll be disappointed, but I do understand that it is not something he can control unless he’s willing to cut bad deals. So I’d be far more disappointed if he compromises from what is fair just to get a deal signed. I don’t think he will. Because of that, I can imagine IDCC not signing anyone in the next few months. If that happens the loss of the 2G revenues at the end of 2006 (won’t affect the reported earnings until Q2 2007 because of the reporting in arrears) will start to put pressure on the stock price. The price is up ~50% since the LG signing with the only significant news being the arbitration decision, which adds nothing for 2007 forward. So I believe the valuation right now is high based on the fundamentals, meaning that there is some good news priced in to the stock. If news does not come the price will almost certainly fall.
What’s the point of this? To suggest for those out there who are over-weighted in IDCC that this might be a time to take some off the table. For the first time I see a significant potential downside in the price of IDCC. I still believe it is a good long term investment, but it may be prudent to move a bit to the sidelines until the next license is signed. I personally can live with missing out on potential profits because of a 25% jump on news that forces me to buy back at higher prices much easier than I could live with enduring a real erosion in my entire holding because I was greedy.
Disclosure – I am still very long in IDCC. It represents 100% of my invested funds in my IRA, Roth IRA and personal account. However I’ve converted about 25% of my holdings to cash. If IDCC were to announce great news tomorrow I’d be thrilled. However as time goes by without news I will continue to reduce my exposure. I say I’m not a true long because some here think that anyone who ever sells in not a true long, so I’ll accept that. But if you think a true long is one that holds a material investment in this stock, then based on investment to net worth ratio, I’m sure I’m one of the truest longs invested in IDCC. So if you want to disagree with my premises or logic, please share your thoughts. I like to hear different points of view and would LOVE to be convinced that I am being way too pessimistic. If you want to question my motives please send a PM and I’ll be happy to address your concerns without cluttering the board.
Frank
Yahoo says *IDCC, meaning news
But I don't see any story. Is there anything out there or is it just a Yahoo thing?
If the above makes no sense to you, here's what I'm talking about.
On the Yahoo stock list it puts an * by the ticker symbol if there is recent news (within 24 hours). Usually Yahoo will have the story in the news section of the IDCC stock page. The asterisk is by IDCC but there is no story since 10/6.
RIP Engine and Transmission - Now Heart and Soul
Maybe moving away from the gear head analogy to one of love will attract licenses!
From the interview
Our capabilities in system knowledge and focus on the development of air interface and modem technologies that go into the inner workings of every mobile device sets us apart in our ability to define a wireless system. You could call this the true heart and soul of a wireless phone.
Mr. Merritt does a good job communicating. Very positive, articulate and confident. Hope he can get on the financial shows and present IDCC. A compelling story with solid financial performance should bring quite a bit of interest in our little gem. It would be wonderful if the interview was prompted by a new 3G license with one of the top 5.
Brad, it's the same question, but different
We keep asking if their compensation is fair in comparison to their contributions. They keep saying yes. However the compensation keeps going up, so we ask the same question but the amounts (and their performance) has changed. Of course, you're right that the answer isn't going to change, because if they believed the compensation was too much they would not approve it. However I think it is important that they understand that shareholders are concerned about it. My goodness, can you imagine what compensation levels would be if they were kept private. It boggles the mind.
Olddog, you are a must read poster
You consistently provide great research and facts to the board. You are on point, concise and easy to read. You also include your well reasoned thoughts and analysis. Unlike me, you are able to avoid throwing in digs at others that distract from the point. Sometimes I agree with you, occasionally I disagree and sometimes, like the referenced post, I say wow, I never thought of that. Thank you so much for all you contribute. You are a first ballot Hall of Fame poster in my book. I hope to meet you at the Houston 100 and buy you a drink to toast your generosity.
Brad, you are right about many things
I do try to be balanced and open minded, however like most people I am most motivated to comment when I disagree, so let me make clear that I do respect your experience and contributions to this board. Some things you said recently that I think are correct are:
I've invested some of my assets in this company. As long as my estimated future returns exceed what I think I can make in alternative investments going forward without any involvement from me or any other investor I will stay invested. Otherwise I'm out and into something else.
and
So, what to do now? Whenever I've been faced with that question I've used the zero based budget approach, i.e. start with the definition, goals and objectives of my job and then decide what actions will cause me to best perform my job. As of Friday's close I had $105,700 of my personal assets invested in IDCC. My job is to make sure every day that the $105,700, along with my other financial assets, are invested in such a way in context with my cash needs that my long term personal financial goals are met or exceeded to the greatest extent possible. Every day I am completely free to do whatever I want with whatever the value of that $105,700 has become on that day. That's my job and presumably the job of everyone else on this board. At the end of the day, I can't expect anyone to help me with that job. The responsibility is solely mine.
and although we’ve never met, most accurate of all
the Count naked .. now that is scary sight to contemplate LOL.
The reason we disagree so much is because we start from two very different perspectives. You were in management, understand issues as they see them, and understand that they have far more information then we have, so they have a better grasp of what is required to make the company successful. This may surprise you, but I agree with that as well. Our great divergence comes in that you feel since they have this superior position it is ignorantly presumptious to question anything they do, including determining compensation. Therefore we will never agree because I do believe that shareholders do have the right to raise the issue.
Geez, I guess I can be courageous too!
Finally, someone on this board that has the courage to say that the management of the company MIGHT be concerned about making the company successful, not just maximizing their personal wealth. Doesn't mean they will always make the right decisions because like all human beings they make mistakes. But it also doesn't mean that they are not trying as hard as they can because they have spent most of their time insuring that they will get wealthy even if the shareholders don't.
I agree completely with this statement. Management is striving to make the company successful, and I do understand that they will make mistakes. I do not believe that they are spending most of their time trying to get wealthy, except by making IDCC as successful as possible, which is to all of our benefits. Actually, I'd say anyone who does not agree with this should sell because if management were as parasitic as disagreeing with it would imply, there would be little chance of success.
However agreeing with the above does not mean the when it comes to compensation of management, management does not side overwhelmingly with themselves vs. shareholders. That's the distinction that you cannot or will not make.
Good input Data, as usual.
My3sons87, golferwalt and ellismd - great posts
You made very good points and responded beautifully when Brad (DannyDetail) responded with the rhetoric of management apologists. I’ll add some of my thoughts to the mix.
Brad wrote
I'm not sure what you mean by "as shareholders we should have control." Exactly how would you implement that and have the company run in a way that would be responsive in a timely manner to its competition? Would you have everything put to a shareholder vote? Or would it only be bonus plans or compensation issues? How would you propose to provide the shareholders with sufficient information to make an informed decision?
Shareholders need to have control over decisions where management’s interests are different than the shareholders’. There is only one that I can think of, and that is management compensation. This does not mean they should all get paid very little. Shareholders are capitalists and understand that you need to incent and reward people to get results. However we also have some perspective on what it takes to accomplish that, and I believe very firmly that we are so far past where that line is that it the present situation is obscene. I am hoping that the institutional investors are considering using their voting power to let Boards know that they better bring some perspective and reasonableness into compensation. If institutions do that they will have overwhelming support from individual investors.
Stock ownership by management to align interests was a great idea, but it’s been twisted and distorted so much from the original that it is now just a method to pay out huge amounts to management in a way that makes it very difficult to calculate just how much they are getting. I think we can all agree when things are arranged to diminish transparency it is not going to be to our benefit.
They could cut their compensation by 90% and it will mean nothing to us unless they execute as WM has suggested they will. Compensation is always the easy target .. and a red herring .. when results come up short of expectations. You can't turn a bad manager into a good one by paying them as little as possible. On the other hand you can't keep the best managers for long if you underpay them. The best people leave of their own accord for greener pastures. The bad people refuse to leave until you fire them.
Nor can you turn a bad manager into a good one by giving him buckets full of options. Bad people will leave for greener pastures too if they can find them. My problem (okay, I know I’ve got a lot of problems, so I’ll say)…My issue is that to my knowledge, everyone in management has always reached their performance goals, including those that were fired months later (they must have hit the wall pretty suddenly) and none have ever jumped to a better position. What makes anyone think we are on the verge of losing people, and if we did that we could not find adequate replacements? Let me make it clear I am not talking about the engineers and technical people. I have no problem with their compensation, including bonuses. It is the management that I feel is overcompensated because they are setting their own salaries. This does not mean I don’t think Mr. Merritt and his management team are not doing a good job, it’s just that I feel the pay package is far more than they are earning.
The compensation issue is not a red herring. For an example of what a red herring is, this response to Walt about shareholder input on compensation is textbook.
I believe that the creation and on going modification of effective compensation plans in a timely manner is one of the most essential aspects of day-to-day operations. It is a complex task requiring significant detailed analysis. Moreover, there are quite often times when time is of the essence and it would be counter productive to wait for an ASM vote. Finally, if the shareholders take control of this aspect of day-to-day operations they will surely push for control of other areas leading to the maximum damage management by committee can produce at a company.
It implies that compensation decisions need to be made on day-to-day manner (wrong - bonus plans that cover years do not require quick decisions), and includes a slippery slope argument as well (yes, if we vote on management compensation and bonus plans soon we’ll want to decide what software they use), concluding that it would result in “maximum damage”. Wow!
I'm disappointed in the 3:1 exchange
Management continues to skim excessive amounts of bonuses for doing their job. They are, have been, and will receive massive bonuses for what has been a moderately successful performance. Some who were unsuccessful (MG, RIP, Howard) reaped great rewards. Do you think any of them think they made a bad choice coming to IDCC? Of course not. They made a boatload of money even though there performance resulted in them being terminated. Success or failure, big bonuses all round. I am positive that if IDCC's stock is over 25 in Jan 2008 that management will have met 150% of their targets. Secret targets set by management for management and a trade accepted by the management recipients is not going to be to the benefit of the shareholders. I've never felt as mis-aligned as I do today.
It's really sad that stockholders have so little power over these excesses (not just at IDCC). However since IDCC is the one company I own, it's the one that bothers me. I hope the institutions will start to vote out Directors that continue to approve these exhorbinant transfers of corporate assets.
To answer the knee-jerk responses...
Why don't I just sell?
I own a stock that I think will double within two years. The fact I believe that management will take an excessive cut does not mean I should sell.
We have to be fair/pay competitive compensation to keep our talent.
No management has walked away from the company for a better offer. Look at how much we are spending on the buyback and compare that to what we received in option exercise payments. The difference is a part of the cost of the options. If you think this is fair compensation I wish I could work for you. The engineers are creating the value, but management are the ones getting the huge payouts for good, but not exceptional work. Yeah, this is just my uninformed opinion, but I find it hard to believe that there are not many capable people available for less than what we are paying that could be having similar success.
I like the work Mr. Merritt is doing. While I was hopeful for more progress by now, I still think he is a good man for the job. I don't think he's earned multi-millions for what he's done, and I don't think he's earned tens of millions if IDCC does reach the levels I'm expecting. I feel it's like Switzer coming in to coach the Cowboys when they were at the top - yes, they won the Super Bowl, but there were a number of coaches that could've accomplished it. Pay related to work done / value provided. Value does not equate to the change in market cap. Value is what he accomplished that others couldn't. Of course it is unknowable, so I'll just have to continue to be a cheap, ungrateful bastard because I don't think management is earning what they are getting.
OT - FUBAR defined
You'll have to guess at what the F stands for...
F *****
U p
B eyond
A ll
R ecognition