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hacitra, it's not a crime, just stupid...
good golly, what a crime to pay someone a 10% commission.
...when the prevailing rate is much lower and you are getting nothing extra in return.
yet we as shareholders in IDCC contribute not a penny to the company to make it a success. to use an analogy, we are feeding off the host with the expectation of receiving a gluttonous meal. therefore, if the host is successful, we will enjoy our meal. does it matter that they will also get fat.
Welcome to capitalism. People invest, others work and get paid (hopefully fairly, not exploited and not exorbitant), and the owners get the profit or suffer the loss for taking risk.
an other way that I look at it, I would rather share in a very successful venture where the outside shareholders own 65% of the company then an unsuccessful company where the outside shareholders own 82% of the company.
Sorry, but that is a false argument, unless you can show me how the excess compensation caused the company to be successful. How about I would rather own 82% of a successful company than 65% of a successful company or 82% of an unsuccessful company than 65% of an unsuccessful company.
but then, this is my personal view given my blank check mentality
Sadly, many share your view. You seem like a good guy who wants to be fair and generous and share with those who helped make it possible. You'd be a great friend to have. However, let's say we went to the track, I gave you a tip, it won and you offered to take me out to dinner. I show up with my wife and kids and we proceed to order great quantities of very expensive choices and some fine wine. Are you just as happy with 65% of your winnings as you would be with the 82%? You are a much nobler soul than I.
EconEli,
cripes, 10%? Where do you live? They only charge 2 - 3% here.
That was my point - just because you've done well does that mean that you disregard any type of rationale when you pay for the services rendered. No one would pay 10% commission to a broker in that situation, but with a stock, blank checks all 'round.
Yes, I do. Why do you refuse?
"skimming and robbing".....and you want me to put thoughts between my dots.... .... you
No thanks, tc
Like commissioned bond traders or real estate agents and lawyers who work on a contingency, I would first do a quick review of the expected result and only accept those clients were I could make a good or potentially huge fee and institute a minimum fee or not service those who would not be profitable to me. Yes, I am greedy, but not stupid.
hacitra, in a word, YES.
it seems to me, everyone benefits when IDCC achieves it goals. does it really matter if the percentage return on our investment is a few percentage points less?
If you bought a home for $250,000 and now could sell it for $750,000, how would you feel if the real estate agent who sold you the home now wanted a 10% commission to sell it to someone else?
Ever played in a poker game where the house drags a percentage from the pot? The winners can be happy because they came out ahead, and the losers did not have nearly as much taken from them because they didn't win many pots, so no one can complain. However, the fact is that both are worse off than they should be. The house deserves a cut for providing a service, but if it gets to high, then the winners get a poor return based on the risk they took and the losers are forced out of the game sooner, missing a chance to recoup.
I will never understand this blank check mentality - I wish I could do tax returns and get paid a % of the refund.
Sophist, here's the distinction
They buy at 100% of the FMV at the date of the grant, but have 10 years to do so. Mild success (7% per year) would give the person ~100% profit over that time period with no risk. Also, if the shares end up at $20 10 years from now, but are volatile, then folks will exercise and sell on the upswings, again making money with no risk at the expense of the holders of the stock.
Options began as a way for start ups to pay folks when they did not have cash. Those employees were at risk - if the company failed, a large part of their compensation was worthless. They took risk and deserved the reward. Now they've become lottery tickets on top of their compensation. Options are a good idea that spun way out of control and I am going to do what I can (vote) to try to bring things back to some sort of balance.
teecee, put some thought between your dots
vote w/ your shares...the bid is 21.88....
The point is that management is skimming off the top and robbing outside investors of their full return, not that IDCC is a bad investment. The sad part is that you fully understand that, but choose to make your pithy comments to entertain the "loyal" long term holders without adding anything of substance to the discussion.
But then, one who proudly boasts of a "bet" (just what is it you could have lost?), changes the terms when it gets close, and accepts $20K from someone who made "two sticks" (whatever that means in tc speak) on his investment advice could not object to others getting disproportionately compensated just because there is a lot of money available. It's a system that works for you.
Bill Daglish - I'd call it conditioned response
Let's say you hire someone to clean your house and they do a great job of cleaning, but some of your liquor disappears. Still, it wasn't much and it was worth it. You hire them again and the same thing happens. You hire them again and when they notice that the bar is running low, they ask you for the keys to the wine cellar. Saying no is not a knee jerk reaction. Saying yes is enabling a jerk to knee you.
I appreciate all the DD you put out on IDCC, and in fact your old website gave me a great head start and pointed me towards what I needed to do my own DD and led me to invest in IDCC. However, I have to respectfully disagree on this.
You call it a knee jerk reaction. That indicates we are all against any options for anyone at any time. I think that is a gross misreading of most of the opponents of this proposal. We are saying enough is enough and this is too much. Take what you earned when you've earned it, not all you can get as soon as you can get it.
I am not saying management has not done good work. They've added engineers while others in the industry have downsized. They kept the balance sheet strong and avoided debt. They never over hyped the company or made wild predictions. Doing a good job deserves a good pay check, which would include an option package. I believe managements compensation is already far beyond fair. A disproportionate share of options goes to the management team, putting them ahead of the productive employees. The options transfer equity from outside shareholders to management far beyond the value they've added to the company. Again I ask, is there anyone who thinks anyone in management will walk away if they don't get any increase in their compensation, and if they did it that IDCC would be materially worse off?
From a greedy, ungrateful guy who won't sell
If you believe IDCC's management is worth all they are getting and more, you don’t even have to mail in your proxy. The game is rigged so that those who don’t vote automatically support management’s position. I too believe a person should be fairly paid for their work. I happen to believe that management is doing quite well for themselves, thank you very much. Until and unless we get 3G licenses with a respectable rate from the big players, I do not feel IDCC's management has done much to deserve bonuses over the last few years.
If you want to point at the stock price, let me put it this way. If George Steinbrenner decided to manage the Yankees himself, with a salary of $8,000,000, raised ticket prices $3.00 a head to cover it, then managed the team to 95 wins and a division championship, you folks would hail him as a great manager worth every cent, after all he did better than most. My position is that good management could’ve won more games and at a cheaper cost to the fans. If I got paid based on the number of wins the team had, not just where the finished, I would not be happy with 95 wins when Torre would get them over 100. True, the stock price has performed beautifully since January 2001, however that is in large part due to the market greatly undervaluing IDCC. Those who bought in single digits were smart, took risk and were rewarded for it. If I could “buy” the Yankees at 80 wins, 95 is good, but my profit would be due to my ability to see value and willingness to invest my capital, not Steinbrenner’s brilliance. I’ll bet some of you even thought Barry Switzer was a great pro football coach or that Trent Dilfer was a great quarterback – they both won a Super Bowl. I don’t think either one of them was much more than a journeyman.
Yes, I’m a greedy SOB. If I was in management’s position I would probably do the same thing – it’s easy to be convinced of a plan that works to your benefit. If I could set my salary, it would be quite a bit higher. However, others make me justify my earnings by what I produce. That is not measured from zero, but from what I can accomplish beyond what the average Joe could do. If I can’t do any better, I get average Joe pay. If I can do better, I get more. It is limited by common sense. For management to be in a position to get more than all the other workers combined is outrageous to me UNLESS they came up with something so innovative and unique that their brilliance caused the great flow of revenues and income to pour in. I don’t see it here. If we cut off the option spigot, are any of you afraid our management would leave? Would you be worried about the companies ability to replace anyone if they did go? I’d say no to both. I resent management reaching into my pocket year after year for more options. Take cash salaries, period, or out of the money options in lieu of some salary if you want to participate in the hoped for growth.
My response to some common remarks from those who support managements compensation levels.
*If you think we are hurting the company by not giving them the same assets to hire talent, I’d point to the million plus shares still available, remind you that we have finished our ramping up and that the economy is quite different from a few years ago. Out here is Sillycon Valley quite a few qualified, experienced engineers are working in other fields because supply is exceeding demand. Job hopping is now done due to management decisions, not the employees.
*To those that say if your not happy, sell, I’d say you need to take a class in logic. Just because I think my return is being significantly reduced by managements greed does not mean that it is a bad investment, just not as good as it should be. So I will raise my voice to protest, especially when there is an opportunity (however slight) to take action to change things.
*If I am happy with the share price, I don’t care how much management takes. All I can say is how many other people do you give blank checks to for doing their job to your satisfaction?
*For those who say why do I focus on IDCC, well, that’s the only stock I hold, so that’s what I care about.
Unless the institutions decide to vote no (fat chance) there will be a noticeable but ineffective no vote and management will be able to reduce the value of our IDCC holdings by another 10%, which will go disproportionately to management. As an added bonus to us, depending on when the options are granted, may also decrease our earnings per share under the new rules for expensing options. I will vote against shifting wealth from myself and other shareholders to our management and I won’t feel at all selfish about it. I truly cannot understand how intelligent, reasonable people can look at IDCC and think that management is in any way under compensated.
Thanks Ellismd - I'm glad you pointed that out.
Ziploc_1 - I agree with you.
I believe that management was being sincere with us in the CC and that they had legal opinions to back up their optimism. I do not believe that they would have presented one set of opinions for us and then another when they spoke privately to each other.
I believe management was being sincere at the CC, as they have never thrown around specific numbers unless they had very strong reason to believe they were likely to be achieved. I also do not believe (hopefully not naively) they are dishonest. I think they thought that all the pieces were in place and did not anticipate Nokia balking. However, after the CC, Nokia may have indicated some disagreement with IDCC about the application of the ERICY agreement or let IDCC know it was looking at indemnification, and at that point uncertainty entered and selling began. It would be real nice if IDCC would reiterate their confident projections, but there is no upside to them to do so. Part of the standard disclaimer refers to not having a duty to update their position if it changes in the future.
Gamco, regarding the insider selling
Your analysis from the reference post may be absolutely correct, however I have to believe it assumes no appreciation in the stock. If the LFP took the cash it received and bought IDCC stock, then they would receive the benefits you describe and still participate in the growth of IDCC. Unless that is done, the tax and estate benefits would be far outweighed by the missed appreciation. Please don't tell me that selling at a lower price is more beneficial then selling at a higher price. Of course, if one were not confident in the future of their investment then it would be wise.
I believe officers have the right to sell their stock whenever they like (except as covered by the spirit and letter of the law on insider trading). It does not affect the long term price which is based on actual results. When a number of insiders make unscheduled sales in the same time frame it does not indicated good news around the corner to me.
See mscheres post 20864 for the context of the following.
IDCC's management are the "shovel/pan sellers". They promote the potential and are willing to take their money from those who are willing to chase the potential. The longer people believe in the dream (right or wrong), the more they make. If the dream comes to fruition, those who hit the jackpot are happy and most don't care how much they were gouged because that $15 pan collected gold, and they continue to cash in. If it does not work out, folks might be angry about the excess taken by the "shovel/pan seller", but no one can really do anything about it. Once we stop supplying them with the 20 cent pans they will have the same interest in the long term future that us gold diggers have. Until that time, don't fault them for acting in their own self interest. Why should they risk a guaranteed fortune that will take care of them and their children to go for a fortune that will take care of unborn generations.
I can understand the above rationale for insider selling, but please don’t try to spin it as smart financial planning no matter what the expectations for the stock. Isolated sales can be explained as personal needs. Widespread sales tell me that there is uncertainty in the near term. Doesn’t mean that Nokia won’t accept the ERICY rate without arbitration or that the indemnification is not going to be a significant barrier to licensing, but it means that the management of IDCC wasn’t sure of it when they sold.
The conservative nature of IDCC management
Once, you pointed out the few bullish/optimistic statements made by management and have concluded that they are not conservative in their communications to shareholders and the street. However, you picked non specific fluff statements.
Do you have any examples of where management used a specific number prediction or forecast that was optimistic or materially wrong on the high side?
Please exclude any amounts asserted in a specific dispute unless the management indicated they expected to receive that amount. One always asserts the best case and negotiates from that starting point.
OT - Data
Winning is good, but the crucial question is what did it pay??
The cause of excess officer compensation (sigh)
This attitude is a big reason why compensation has spiraled up to levels that defy economic reason...
If management keeps giving me these rates of returns for the next 3 years, I don't care how much compensation management gives themselves. I am a happy investor.
If your house doubles or triples in price and you get to keep a half million of profit tax free, will you care what the real estate agent charges?
If you get a huge tax refund, will you care what the accountant charges?
If you have a great meal, do you care what the restaurant charges?
If you sell IDCC as a 10 bagger, will you care what the broker charges or if they execute the sale at a price below the low of the day?
Recognizing good work and being generous in compensation is something I believe in. Giving anyone a blank check is insanity.
Unless IDCC's management accomplished so much more with the company then almost anyone else could have, it is foolish to reward them lavishly and without limit. Yes, I'm a greedy SOB - I want to control when and to whom I give away my money, whether or not it is out of profits.
This is not a jab at the poster who made the comment - it is a fairly widely held view, especially by folks who get paid on a percentage or commission basis. It just happens to be my pet peeve.
OT: Loop
I don't agree with everything you say, but I do respect your opinion, knowledge and reasoning. I believe you post your true feelings, whether positive, negative or neutral. If you decide to not post here any more, I wonder if you'd be willing to share your thoughts with those of us who would miss your insight and analysis. If you want to send e-mails, I'm sure quite a few of us here would be glad to receive them. A bit presumptuous to be sure, but if you're willing, I'd be grateful to be on the list. My e-mail is frank@paire.org.
Thank you spree
Texb, you asked
When will IDCC's BOD and executives ever learn???
I think they've learned very well. When most people take a job there goal is to be successful and make as much money as possible for the work they do. It's tough to imagine them doing any better at making money for themselves. And they have been successful if you measure it by IDCC's stock price vs. the market in general, ignoring the 1999 rise and fall as being a part of the internet bubble that they had no control over. What that ignores is the very strong position IDCC was in after the patents were revalidated. To me, it’s like taking the USA basketball team to a bronze medal. On the face of it, being third best in the world is a great success, but with the talent we have, I would not say the coach did a great job.
In my opinion, management was too conservative. My view is that it was like a poker game. IDCC had a very strong hand, but were so afraid to lose that management agreed to just take their money out plus a few bucks instead of trying to win the huge pot that was made up of mainly the other guy’s money. Settling ERICY without getting an ironclad 3G license was foolish. IDCC had leverage and gave it away for a promise that we'll be friends. I still can’t understand why IDCC settled for what it did. To quote Randall P. McMurphy from "One Flew over the Cuckoo's Nest" after losing a bet - "I tried, G damn it, at least I did that much." We didn’t – we caved. Maybe are case was much weaker than what many (including IDCC per their press release) saw in the Markman report, what HRS had, and the information gleaned by the Dallas three. I just think with the number of options they have and will get, it did not make sense for management individually to flip a coin with a trial, even if the payoff was 10 to 1 if we won.
By selling consistently in to all strength management is insuring that they and their kids will have no money worries for their lives. If I knew them, I would congratulate them for doing a great job for themselves. They have nothing to learn in that regard. For those of us who have to buy the stock on the open market it’s a bit tougher to get the big return on investment.
The point is that ongoing grants of large numbers of options priced at the then current market price does not align management’s interests with the shareholders. They do not want to maximize the expected return, they want to insure a positive return. Management has acted quite rationally – it is our fault for approving this type of compensation package, and we should use our proxies to prevent it in the future.
0nce, you are truly a visionary
It is amazing that no one on this board appreciates all the wisdom and good sense you bring. It only pains me that you are so modest and self deprecating. No one, except you, has ever been so right so often and yet you remain humble and helpful. It was nice of you to chime in yesterday after the 10K came out to advise us all that the stock was in for a quick retreat. And now that you've let us know that we're headed back to single digits, well, let's just say I'm shorter than mini-me on his knees.
My thoughts this fine April 1.
Little help please - Bill Daglish Website
Can someone give me the address to his website.
Techlover
I'll get in touch with you after April 15.
Dishfan, you hit it right on the nose
I was about to reply and then I saw you had answered better than I could.
In addition, the last person the company is going to whisper inside information to is the IR person. He has to be kept in the dark so he can't tell or hint to anyone through a wink or the inflection in his voice about the future. Look back at the weeks activity before the little, then big announcement. If IDCC were a heart patient they would've sent for the crash cart. Pulse (volume) very low and the beat (volatility) almost flat line. One bright poster suggested that news might be on the horizon because IDCC is so good in avoiding leaks and the stock and board were dead quiet. With most stocks, volume and price movement precede major news, with IDCC the news comes first – AS IT SHOULD. Management does an absolutely great job of not letting impending news out until they announce it.
Mr. Hicks hasn't been with the company very long, and I'm sure he knows many people (possibly including himself) who had fortunes in stock options over the past few years vaporize because they were going for the mega jackpot. People have become much more conservative and like to take profits. I hope I don't regret that I'm not one of them, because I'm still looking for money to buy and have no intention of selling. The siren call of margin keeps nagging at me, but the thought of having to sell on a short term dip keeps me from getting carried away.
OT: Dishfan
I will definitely be there - been there a few times before, it's only a couple of miles from my home. We can swap stories about the Giant, Niners and Warriors. Not many admit to being Warriors fans. Shows you're not a front runner.
GoDuke,
Great article you posted about how truly outstanding we are doing in Iraq. Not to trivialize war, but as a long time 49er fan I remember when the 49ers would play a quality team on the road, come away with a solid win and the next day the papers would criticize them because the running game wasn't good enough, or the other team came back to make it close in the 4th quarter. The media builds up unrealistic expectations, then questions why you're failing when there projections turn out to be wrong.
French vs. Germany:
The difference is that Germany was our enemy in the two WW's so they really don't owe us anything for ending the war. If we hadn't intervened, they would own France and probably some other prime real estate right now. Germany can actually win a battle or two, France is angry that no one thought of the surrender by numbers instructions earlier. Germany does not view it as a patriotic duty to oppose the U.S. government and be rude to individual Americans. Germany did not sell nuclear technology to Iraq. Not saying Germany is our blood brother, but when it comes to egotistical snobbish ingrates with an incredibly inflated idea of there importance in the world, france is unrivaled. They try to prove their relevance by stopping the U.S. from implementing policies around the world.
You forgot the header on your list of french companies:
“Boycott the following”
Hi Dishfan,
I try not to clutter the other board, but since you're over here I figured I'd send a shout out to ya.
I like the way your posts reflect the realities of the situation with IDCC while maintaining a positive outlook. Keep it up - you add greatly to the dialogue while avoiding the bickering.
Dagrinch - NOK rates
It seems that the rate for 3G from Nok was previously determined, but the accrued royalties (from 01/02) for 3G were not payable until the 2G rate was established, which then determined the overall rate....whew!
My understanding was that a 2G contract established 2G rates, and a qualified 3G contract established 3G rates for Nokia. I hope I am wrong and that Nokia is on the hook for 3G now and going forward. Can anyone confirm what Dagrinch said. That would put the settlement in a whole different light to me, assuming the 3G rate is at least .25%.
AMS,
You said in the past you follow the lead of the greedy ones at the top. So sell x% of your holdings. If you believe in that indicator act on it and profit. I know you fear this will keep the stock from getting to $23 so you can cash out, but be patient.
Why do they sell? You say you're an accountant. Do your clients ever ask you for investment advice? If they have their job, their retirement and their investments concentrated in one company, what would you advise them to do? Hang on as long as they thought is was a good investment and buy more on the open market because it will make the outside stock holders feel better or diversify into other stocks, other sectors, other investment vehicles (like bonds, real estate, etc.). Tell me when you've ever acted against your own financial interest to help unnamed others possibly benefit.
I obviously think the company has been way too generous with options, but once they are granted they are the employees' to sell for their benefit, as long as they are not violating the spirit or letter of SEC rules. I asked this question before and got no answer. When should insiders sell their stock? Put yourself in their expensive shoes for a moment. If they sell when the price is falling they are skewered for bailing out on a sinking ship. If they sell into rallies, they are killing momentum. If they sell in a flat market they are showing no faith. Should they only be allowed to sell when they leave the company? That is idiotic. Unless the selling is by a large number of insiders, then I believe it is an investor making a personal decision to change part of his net worth from IDCC to other items, whether savings or consumption.
Broken80 - Rate for 2G and 2.5G
I believe the rate is .5% or .4% if prepaid. I think it was rmarchma who did a good job of crunching the numbers and his calculations made sense to me. teecee came up with .75%.
Short squeeze - who cares (other than shorts squeezed)
Unless you are looking to sell in the immediate future (either stock or options), a short squeeze does nothing for the long term stock price. There is a spike up on forced buys, but within days the price comes back to where it should be as traders sell at the artificially high price and new shorts come in.
broken80 - Nokia and Samsung rate
Yes, the ERICY settlement does provide a trigger for Nokia and Samsung to pay 2g royalties, which IDCC estimated to be between $120MM and $164MM combined for 2002. They have the right to go to arbitration if they disagree with the assessment. Check out the transcript from the conference call. The link is in my prior e-mail to you.
JK Regarding institutions
There is a tendency for them to hold/buy winners near the end of a quarter and sell their losers. The term is window dressing. They want to show a portfolio of strong stocks to show investors.
As far as institutions holding their winners and selling their losers - it doesn't make sense to me. It seems that a professional investor would do ongoing due diligence and re-evaluate their value of a company and compare it to the current market price without regard to whether they are currently in a gain or loss position. That takes the emotion out of trading which is one big advantage the institutions should have. Also, a strategy of dumping losers and holding on to winners is great in a rising market, a market with a split personality that has some sectors performing well for extended periods while others do poorly, or if the market is having large sustained moves up and down. However in a down or churning market, with few exceptions most of the stocks in a portfolio will be in a loss position at times. If one chooses to sell the losers and hold the winners in that type of market they will end up realizing losses on most of the investments and will need the few winners that managed to stay above their stop loss amount to perform exceptionally well.
I do not have experience with institutional investors, so this is conjecture based on common sense. However, common sense often has little to do with the trading on the stock market, so I could be completely wrong.
OT: Data, right on the money. ;oD EOM
Mschere
At this point in time ..when IDCC has a LOCK on ending the current year with over $10 per share in cash and a minimum of $3 per share in recurring royalty earnings..WITHOUT ANY OTHER SIGNIFICANT NEWS event in the next nine months..The stock, based only on CURRENT fundamentals should be trading at $45 per share today..
I most often here the word LOCK from guys picking against the spread, which has made me very skeptical of that term. It is not a lock, because as you properly point out, IDCC would be trading much higher than we are now. Nokia and Samsung have not agreed to the numbers projected by IDCC, but based on our management's conservative nature, I agree that it is probable. With those funds, $10 a share in cash seems reasonable, though not assured unless we come up with other 2G payments or 3G.
The second piece is more problematic. It's the recurring part of the earnings. While we have recurring 2G earnings, they will be declining going forward. A negative growth rate does not inspire decent multiples. The holy grail for IDCC's stock price is 3G licenses. (Data, please provide appropriate Monty Python sound bite.) 3G earning will be recurring and growing at a strong pace. Even with a rate of 0.25% for 3G I expect that we will be trading much higher than $20. We will not hit $45 until we complete 3G licenses with the big players. I am betting on our management being smart enough to have a pretty good handle on a 3G agreement with ERICY. It should be finalized in the not to distant future, resulting in the others coming on board. If IDCC does not get 3G licenses, then I will absolutely sick about the settlement. When they do sign a 3G agreement, they should announce the rate structure. Since everybody and his brother has a MFL clause, what is the point of keeping it secret? QCOM has no problem with putting out their rate. Put it out there so everyone can see it, as predictability is a big positive when it comes to getting full value in the market price of your stock.
I do hope and expect your estimates to come true, but it is not a lock. The good news is that the uncertainty gives us one last chance to buy while the price is far below what will come IF IDCC’s management executes. If we don’t have 3G licenses for the bulk of the market by year end, you can ask me what I think of management’s execution and I will tell you very strongly that I am in favor of it!
Broken80 - Here's my synopsis of the settlement
FYI – I am one that thinks, based on public information, that we should never have settled for such a paltry amount, so my comments will be shaded in that direction.
See Post 13389 for a transcript of the conference call and the website has all the news.
Those that are happy with the settlement (which includes all the folks that would have quickly labeled a poster a short and a basher if he had predicted the outcome a week earlier) believe this is the start of many good news stories to come. Now the other 2G infringers will sign up, we have cleared an obstacle for 3G licenses, and the Nokia and Samsung agreements going back to 01/01/01 now have a rate and the company projects ~$130MM in revenue from just those two and total cash receipts of ~$400MM for 2002. IDCC also indicated that they look forward to working with a company of integrity like Ericcson. This leads to speculation that we will be getting a 3G license soon and with a favorable rate which will trigger Nokia’s 3G license at the same rate. The stock has risen over 50% and anyone who complains is just greedy. They have strong faith that management will get the rest of the job done expeditiously and on good terms now that they have good relationships with the big boys.
Some of us think IDCC had a much stronger hand and to settle for next to nothing was a mistake. They allowed ERICY to begin paying ongoing 2G royalties as of 01/01/02, which may give Nokia and Samsung the ability to claim MFL and not pay for 2001 as well. I believe the agreed to rate is 0.5%, with a 20% discount for prepayments. Others have estimated the rate to be 0.75%. In any event, that is below our range, which was held down by the infringers who left IDCC in a very weak negotiating position where they had to accept almost anything. I could have been satisfied with the small amount for old 2G if they had gotten paid retroactive to 01/01/01, a rate over 1% for 2G and included a WORLD WIDE 3G license at a rate of 0.5% or more. That would’ve locked up Nokia and ERICY, over 50% of the market and given us a benchmark and credibility for the other vendors. Apparently IDCC’s management trusts that ERICY is going to be a reasonable negotiator now that they have new management, but I do not share that faith. I do believe they will license for 3G with us, but I doubt we will get a rate of 0.5% or better. I can’t understand why 3G was not a part of this agreement. Why piss away your leverage for a promise from a company that’s been taking advantage of you and others for over a decade. I just don’t get it. With NOK and ERICY paying only ~$30MM each for pre 2001 2G, I don’t see big check coming from the smaller players if and when they settle. I hope I’m being pessimistic, but if I’m sitting on the other side of the table from IDCC, I just don’t see what leverage they have. Why be afraid of a law suit. Ten years later you can settle for pennies on the dollar and spread out the payments. I truly hope that this goodwill gesture by IDCC is repaid in kind with a strong business relationship with the ERICY and NOK, but in business I find power gets a lot more respect (money) then playing nice.
Why did the price go up? So why don’t you sell?
The market has greatly undervalued IDCC. Those of us who’ve invested in IDCC were smart and we are profiting from our investment decision. Even with these results, which were at the low end of my expectations, they should be able to generate $2.00 / share of recurring revenues with good growth going forward (assuming they get some kind of 3G license). That should get a multiple of at least 20, giving us a share price of $40. And there is a lot of upside potential with 3G and other endeavors, like chips. So while I believe we left a lot on the table, this company is still greatly undervalued. The potential and risk reward are still excellent, but not the QCOM type performance that I’d dreamed of. I think management wanted to lock in a sure thing because even at $30/share, they are set for life, so taking a 50/50 risk to get a 20x payout or more was not in there interest. A bird in hand was worth a nest full in the bush to them. So they took the safe route. Many investors are glad they did. They would rather have a sure winner than a risky investment with a huge payoff. I just happen to be one of the other ones. Hope this helps – I’ve always appreciated your posts.
Mickey, re: validation
If ERICY only paid for U.S. infringement, why would MOT or anyone else pay for anything beyond that?
My expectation was that a settlement would launch the stock because even if we got peanuts (or even just the shells) for 2G, we would have a 3G license that would validate our IP for 3G, giving us visability and growth for the rest of the decade. I'm hoping ERICY's newly discovered integrity will lead to a 3G license announcement in the near future with a figure that is not below 0.25%. 3G licenses at a decent rate is what we need to be a great growth company in the years to come.
Help with New York travel
I am traveling to New York city in a month with my 17 year old daughter and my 16 year old son. We'll be there for 4 days. First time there for all three of us. Looking for advice on where to stay, must sees and whether we should rent a car or not.
I appreciate any suggestions. You can e-mail me directly.
Frank@paire.org
Technical
How many are getting out their check books?
ERICY pays $34MM through 2002, NOK pays $31MM through 2001 and we'll see what for 2002 and MOT pays nothing.
If I was a hard ass infringer getting a call from IDCC, I'd come with my lawyer and my petty cash fund and say take it or leave it. I can either give it to you or to him to defend us. You've proved you don't have the stomach to go to court and if you do go to court and lose, well, you know what you're afraid of, so we won't even bring it up. But trust us, when it comes to 3G, we will make it up to you. Really. We're a very ethical company too.
HeavyDuty
I appreciate your analysis, but I think you should update the amounts you're using for free cash flow. While $400MM is reasonable for 2003 based on company guidance, this includes NEC money, payments for items earned before 2003 and prepayments for 2004. Therefore to use that as a base and project growth from that base does not give a reasonable projection of the future. I think it would be more useful to look at projections of recurring earning streams for 2003 forward, and make the assumption that the cash flow will equal the earnings. Also start with $5 a share in cash, which should be added to your ending balance because that is the cash we would have if all we collected was for pre 2003 licensing, which would not be included in the recurring revenue projection.
JKJ - Howard's option exercise
He exercised options, so the stock is coming from the company, not another investor. He could have just as easily exercised them today at the same price. So there is no one hurt by his trade. Well, except for the IRS, because he is taxed on the spread between the FMV when exercised and the exercise price. He will still have to pay tax on the amount he deferred by buying sooner, but it will likely be at LTCG rates.
quartzman0 - Well said. (eom)