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Why didn't anyone look at IDCC BEFORE
They did, however IDCC's value and near term potential based on fundamentals was above what they were willing to pay. Google was hoping to get Nortel for under a billion. The auction showed that patents are much more valuable than previously thought. Now the value of the patents as an asset likely exceeds the market valuation of the projected earnings stream, especially over the short to mid term.
The Nortel auction changed the game. The difficult part for me is I really have little knowledge on how to value IDCC now. I don't know how IDCC's patents compare to Nortel's, or how they fit in for Google, Apple or others. I don't know how willing potential buyers are to get into a bidding war. If the value of IDCC patents is to cripple Google, would that raise anti-trust issues? IDCC is not going to comment until they think it is appropriate (don't hold your breath) or required by law, which means that I the only information is going to be rumors and guesses until there is an offer of some sort. Given that Nortel auction process took about a year and IDCC's patents are only now getting serious consideration, this process could take many months. If it does, then I will probably develop an ulcer and high blood pressure. And I hate to think about the posts as people get crazy waiting in the dark and options start to expire.
Why would an acquirer pay through the nose?
Because they have to.
I think that IDCC shareholders would accept a buyout offer of under $100 if the choice was take it or leave it. However the hope is that we aren’t going to have to sell at our minimum acceptable bid because there are multiple companies interested. In that case the sales price becomes a bit higher than the second highest bidder is willing to pay. To use your restaurant analogy, IDCC has a prime location that would draw a very profitable clientele under the right guidance. The profits will allow you to expand your chain beyond just the value of this location. In addition, if your competitor gets it, they will be able to increase their market share at your expense. So you are going to be willing to pay more than the restaurant would be worth as a single unit because of the value it brings to your chain, and the difference between your chain's value with this restaurant making your chain stronger and your competitor’s chain weaker versus the reverse if your competitor buys it.
I am really happy that the BOD has engaged Barclays and Evercore to help them maximize the valuation. Do I think Joel’s projections are likely? No, I think he is looking at the best case in the same way that IDCC sees its licensing as best in class, more fanciful than factual. However I do see M Partner’s analysis as being reasonable and a buyout in their range of $118 - $167 as a very real possibility. It might even go higher, but I think a multiple of those levels is unlikely. I sincerely hope Joel is right.
From M Partners report:
Great work Postyle,
Thanks for posting the wonderful aggregation of links to relevant information for doing DD into IDCC. That is a great service to shareholders. It allows us an easy way to review critical information and it is a fantastic way for potential shareholders to efficiently research IDCC. Without your post, most would not be able to do adequate research in the limited time they have to research IDCC. They can quickly see the compelling story and make an investment decision on buying IDCC. With the focus on IDCC at an all time high, your sticky makes the information available to the maximum number of investors.
Very good post JDBJMB,
Good analysis of the situation. I agree with most of what you say. One place where I have a different opinion is the new ITC action. The way I see this happening is as follows.
IDCC decided to take another shot at the ITC after the surprising decision with Nokia. They filed some new, improved patents clarifying the language to defeat Nokia's interpretation. In June they received the last patent, so at that point the legal team put together the filing. Meanwhile, the Nortel auction caused a paradigm shift in the value of patents. Google, while preparing for the Nortel auction, wisely looked at alternatives to the Nortel patents as they prepared their bidding strategy. When the bidding rose above what they felt was appropriate value, they bowed out and contacted IDCC. It's possible they contacted IDCC prior to auction as well. Once Google lost out on the Nortel patents, they turned to IDCC. At that point, IDCC engages M&A help and makes the announcement that the company is up for sale. By then, the ITC filing is materially complete. While IDCC is optimistic about the prospects for selling the company, the cost of filing the ITC action is minimal and it starts the clock running. That way if IDCC does not sell itself or the patents, or the purchaser wants to use the patents offensively, the process is in motion.
Thanks for posting your thoughts. Don't be shy about sharing your ideas in the future.
Why are people so upset about the headlines?
Anyone looking to sell tomorrow? If you are, then I understand why the headline stating a 5 cent miss instead of a penny beat would be upseting.
But if you think that current earnings, much less headlines regarding earnings, will have no affect on the expected bids that will determine the price of IDCC shares and you may be inclined to buy more or buy some options, then the headline might keep the price lower for a very short time and allow you to buy cheaper. Although the AH action seems to indicate that the headline means nothing as the take away from the announcement is that the cancellation of the conference call signifies that IDCC's focus is on the sale of the company. That sure is my take away, and I couldn't be happier. For one thing, I don't have to get up by 7am PST to listen to the CC.
Options are high risk
Joel, you've made a lot of good posts and I have agreed with many of your points. You add a lot of intelligent analysis to this board. One place I disagree is that a buyout is a slam dunk and the bids will be coming quickly. Possible? Absolutely IMO and I am optimistic, but far from a sure thing. Given your belief, your understanding of the situation and options, and the small amount wagered, your option play is absolutely appropriate for you. However when you throw out the 100-1 hoped for result, you may entice others less knowledgeable to make a risky investment that may not be appropriate for them.
Options are speculative investments (unless you are using a hedging strategy). Buying calls in hopes of the price going up is a great way to make a huge killing when it works. However, most retail option traders lose on their trades, often the entire amount invested. Not only do you have to be right about the stock price, you have to time it right as well. If the price does not rise past the strike price by the option date, the option expires worthless and you loss all you paid. You can always sell your option before it expires. There is a time value that erodes as the due date gets closer. You can get an idea by looking at the same strike price with different expirations to see how that works. If you trade, be aware that there are large spreads on the contracts. The Sept 105 calls bid is $1.30 and the ask is $1.65. That's over 20% juice if you buy and then sell. Commissions on option trades are higher too. You can look at the bid of the options with strike prices $5 high and lower to get an idea of what your option would be worth with a $5 move. For example, the Sept 100 call bid is 1.95, and the Sept 110 call bid is $1.05. So if IDCC goes up $5 tomorrow, you could sell for an 18% gain. If it goes down $5 tomorrow, you could sell for a 36% loss. The magic of buying call options is that it is a right, not an obligation, to exercise. You can only lose 100% of what you invest, but the upside is unlimited, 10,000% if it becomes worth 100 times what you paid. If you want to gamble, that's fine, but be aware of what you are doing and don't gamble money you can't afford to lose.
Loop said
A must read - Thanks Postyle
http://wirelessledger.com/Mpartners_morning_note_2011_7_25.pdf
I love this. $118 - $167, and they are being conservative with a few of their assumptions IMO. 85% of the market - a big dog like Google or anyone else who can pony up that kind of cash will expect to be able to get almost all of the market. An 18% discount rate. In their wildcard, risks and unknowns, they state that they have not included any value for the video compression patents. It's great to see this from a company like M Partners. Moved my needle more towards greed and away from fear.
Instead of Uncle Billy on the CC, let's get the ghost of Billy Mays and light a fire under the potential bidders.
If there's no buyout, don't blame management
Right now, you, me and everyone else can make their own decision about whether to sell the stock at these levels. If you don't sell and no one makes an offer, then your lost profit is your fault, no one elses. If you sell and a buyout comes, then your missed potential profit is your fault and no one elses. If you hold and the stock gets bought out, then the gain and all the credit goes to you, and no one else (well, except our Uncle Sam).
Thanks to those who shared their thoughts
I’ll respond to the pertinent comments all in one post. First, I envy those who are so certain about how this is going to play out and don’t need any help. I’m sorry for boring you with questions that have obvious answers, but I hope you’ll forgive me for my ignorance. Second, I’ve deleted posts about posters who may have insulted me. That debate is off topic.
dndodd,
The company was doing the right thing making the announcement. If my post gave the impression that I thought they did something wrong, I’m happy to clear that up.
I’m not looking to find a consensus on the message board – I think there is a pretty clear consensus here. What I am looking for is for others who have different experiences, other areas of expertise or may have thought of things that I haven’t. I’m clearly not the smartest person here, so I’m grateful when others are willing to share their knowledge and ideas. I will use that information to broaden my understanding of issues and make my decision.
Roger,
I’m not a big one on stock manipulation, however when the stock almost doubles on speculation of a buyout and there are lots of rumors floating around, I do see higher potential. My scenario was just something I made up to illustrate my concern that there might be some pumpers manipulating the price. I have no idea about how that works, but I do know there are manipulators out there. When we are trading on fundamentals, I don’t worry about stock price manipulation as I believe stock price and the stock’s value converge in the long run. However if this happens to be a unique opportunity to get a temporarily high price due to manipulation, I would like to take advantage of it.
I disagree that the goal of this board is to support the share price – I see the goal being to help us make investment decisions. I find it hard to believe a message board can have a long term affect on share price, but I do think we can learn from each other and make better decisions. I think the difference between those two premises is what causes much of the bickering on the board, as people on one side think the posts by the people on the other side are counterproductive to achievement of the perceived goal of the board.
Nicmar,
Thanks for your input. Yes, 1, 2 and 4 are risks I’ve identified, 3 & 5 are not a concern for me. I was interested to see if anyone had any reasons to think that Google would not want IDCC patents or if they had any reason to think that IDCC’s patents would not be worth at least as much as what Nortel got.
Sonic,
Thanks for your thoughts. I’m used to analyzing a company based on fundamentals, so I was hoping for some insight into possibilities/probabilities of a buyout because I have never closely followed stocks in this situation. Google not buying or bidding on IDCC is the biggest risk IMO, and my lack of knowledge is what leads me ask.
Data,
Thanks as always. You are a top five poster in my book.
It’s been fun dreaming this week.
I’ve enjoy imaging achieving my financial goals and having the money to do all I want to do for the rest of my life. That burning desire in my heart may be letting my hopes trump my healthy skepticism and allowing my expectations to exceed what is realistic. I’ve read all the posts laying out the potential valuation, and even written one. Most have a good foundation and make sense. However what I’m missing is the downside argument. Data has pointed out that we really don’t know what IDCC’s patents are worth and that there is no clear value that can be derived from the Nortel patent sale, and he includes some of the reasons. He also stated that it took about a year for the Nortel patents to be analyzed. Other than that, I don’t find any discussion of why we might not see a sale at $5B or more, and soon. If anyone has any thoughts on those possibilities, please share them. Wall Street is not stupid, and if $100/share was a slam dunk, we would not be trading at 73. I’m not saying we won’t get $100 or more, nor that I don’t think it is more likely than not. I don’t need a rehash of the positive possibilities. I’ve enjoyed reading them and have not forgotten them, so I am well covered on that side. I need to carefully consider the probabilities as best I can to make my investment decision, so I’d like to hear opinions about how and why things might not go our way. If you don’t want to be attacked for being negative, please PM me.
Why am I concerned? First, as stated above, Wall Street is not stupid. Second, there are manipulators out there. Everyone always worries about conspiracies that are against them, so we always hear about the shorters. Maybe this time there are pumpers manipulating the stock. They have a great story – Nortel auction, IDCC with a large number of patents and IDCC announces that they are actively exploring alternatives. Those are all facts that would cause the price to rise. Now add that there is a huge short interest in the stock, making it ripe for a short squeeze and those manipulators might see an opportunity to run the stock up. Have a source mention Google’s interested in buying IDCC. It makes perfect sense that they would be interested. Now the momo players jump on. When the stock starts to take a breather, a rumor about Apple pops up, triggering another run. There are visions of a bidding war, almost certainly causing a short squeeze. Now the pumpers can sell at a tidy profit and maybe even go short.
Third, this is IDCC. How much were the projections of the Ericsson lawsuit on these boards and what did we get? What did we expect from a Samsung contract? And how long do things take? How long to get the Ericsson decision? How long for the “fast” ITC process? We presented our case to the CAFC in January, and included in our presentation how Nokia’s strategy is delay, which would hopefully cause the judges to render a timely decision to mitigate that injustice, yet six months have passed with nothing. My experience with IDCC news has been similar to hiring a contractor. Things take way longer than you ever thought was reasonable and the dollars are disappointing and sometimes shocking. So those are some reasons why I want to look for risks and possibilities I may be missing. Fool me once, shame on you, fool me eight times, shame on me.
I think this is an important discussion, as many here now have a significant amount of wealth in IDCC. The purpose of this board is not to support IDCC, but to help each other make good investment decisions about our IDCC stock. I look forward to hearing about the potential risks, as well as what might mitigate those risks. Every day I need to decide what is in the best interest for my family and what is the wisest investment choice for me as facts come to light. IDCC is extremely volatile right now so it is a critical time. I appreciate all the good information and helpful posts I’ve read here over the years. My thanks to the many wise and thoughtful contributors who have helped me with my understanding of this investment.
Tender offer and shareholder vote
Thanks for clarifying your point
You are correct bulldozer
Google stated that they have to indemnify the users of the Android platform, so they need the IPR to give them the ability to cross license. Thanks for clarifying my poorly stated statement.
GBR, IDCC EPS aren't going to drive the offers
If IDCC were selling to another NPE that was looking to license the IP, then EPS would be relevant. They are not. The value of IDCC patents to Google is primarily the amount it could save them in royalties and legal fees by cross licensing with other producing IP holders. They could potentially get licensing fees from other manufacturers that don't have IP to cross license, however that is a small part of the market. The cost savings from cross licensing will allow them to have a lower sales price on Android, allowing them to gain market share. That is what Google is going to look at when deciding how much it is willing to pay for IDCC.
Apple will be looking at that as well, and they will decide how much it's worth to them to keep Google from getting the IP that will allow them to drive prices down. Right now, the best thing for us would be a lot of buzz about Android. The more interest in Android, the more savings to Google vs. per unit royalties and the more threat to other manufacturers market share if Google can lower its variable cost per unit.
This is my layman's theory, and I have no expertise in this area, so if anyone with knowledge can point out things I missed, please chime in.
Accepting $13B would not breach fiduciary duty
as the deal would still have to be approved by the shareholders. Not putting the best deal up to a vote by the shareholders would be breaching the fiduciary duty.
I don't know how this will play out
My thoughts right now are that we should be worth at least $5 billion, or $100 a share, based on $4.5B for patents (using Nortel as a benchmark)and $0.5B in cash, and assuming 50 million shares after dilution for the convertible debt and options.
I have not made any defensive moves with my IDCC stock. I am a gambler, and because I would really like to begin semi retirement now, at 53, I am not selling. I believe that the stock is more likely to be bought out then not, and that the price will be at least the $100 per the above. I'm betting my life savings on it. Not a prudent choice nor one I'd advise to anyone else. I'm just putting it out there so that no one is mislead by my earlier post thinking that I backed off. I did take a hard look at the situation, but the premiums on the options are so high right now that it did not make sense for me. In addition, I'd have to sell some shares to buy puts in my IRA accounts. So I am still all in.
Google, Apple, Microsoft, time for you to show who it the biggest, baddest company out there. Show me the money!!
Exit strategy
For those nearing retirement age and/or that have a significant portion of their net worth in IDCC, this is a time to look at locking in profits. IDCC is no longer trading on fundamentals. It is an asset play. If things go crazy, ala Nortel auction, then IDCC could sell for 2-3 times the current price. However if there is no sale, we fall back to the prior trading range and these levels will not be seen again until IDCC successfully monetizes its IP. That has proved to be a long, slow process with some hits (LG) and misses (Apple, Nokia, Ericsson). Right now, the CAFC decision will have little effect on the price because its significance is related to IDCC monetizing the IP in the near future. That will only affect the downside risk if the sale does not happen.
You may want to look at selling some of your position or buying some puts to guarantee that you make some of these paper gains permanent. This is a crazy time in this stock. You have to ask yourself which will hurt more – missing out on potential additional gains if you sell/having your puts expire worthless, or seeing your portfolio sink back to last week’s levels. The decision is different for each individual. You have to look at your financial situation. What do you need to have the life style you want? For those heavily invested in IDCC (congratulations by the way), you now have a large amount of money invested in a very speculative and volatile stock. The stock could realistically fall by half or double in a matter of weeks. Is it prudent for you to keep that type of risk for so much of your wealth?
Look at your financial situation and determine the effect on your lifestyle of IDCC going up and going down. If you are set for life without IDCC, then it’s just probability and expected value. However for many, a $30 fall in the stock price would have a much more negative impact on thier future than the positive effect of a $50 rise. So even if you believe the chances of each is 50/50, it might be prudent to pare down your exposure at these levels, as IDCC has become a much larger percentage of your portfolio (except for the crazy all-in folks) and of your net worth.
I’m not saying that I don’t think IDCC is worth these prices or that the BOD won’t be able to structure a good deal. What I’m saying is I don’t know, and that there is significant risk at these levels. If you feel like you have a good grasp on what the outcome of this exploration of options by the board, then good for you. However if you are like me, and have a great deal of uncertainty about how this is going to play out, you should be looking at your investment in IDCC very closely. Hedging your bets will never give you the optimum result, so no matter what you may be nagged by “woulda, coulda, shoulda.” On the other hand, it will also protect you from the worst result. Buying some out of the money puts might be a worthwhile insurance policy, protecting you from the downside while allowing you to fully participate if the company is sold for mega bucks.
jmspaesq, I wish more had this attitude
I'm in with Quantum Physics
I'm so desperate for a decision that I'll grasp at any straw.
I'm not familiar with Quantum Physics, however I do believe I was exposed to the theory when I was about seven. I watched "The Music Man" and learned about the "Think System". So I fully expect a decision this week (as I recall, another long awaited announcement came out on the Friday before the 4th of July long weekend). The share price will finally makes its assent into triple digits, we will all meet for the Houston 100, and Professor Harold Hill will be there to lead us all in playing "76 Trombones" on our brand new band instrumnets.
The deleter strikes again
I've deleted dozens of posts over the past few days. They include multiple posts from multiple moderators that were adding fuel to the off topic fire.
Complaining about a poster, the moderators or the fairness of the board is a waste of space and time. If someone says something stupid, refute the statement and be done. If you want to explain to them in some detail why they are a sniveling pile of parrot puke, send a PM or an e-mail. I've had my conflicts with various posters over the years, but when it got personal I took it private out of respect for the hundreds of followers of this board. It would be appreciated if you would do the same. Here's a link to my post about moderating this board.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=51887304
If you like what I say, no need post, as I am so conceited I already know it. If you feel I am stupid, ignorant, mislead or just plain evil, send me a PM or an e-mail and I'll be happy to take your comments under advisement.
There is a long weekend coming up, so I won't be so quick to delete off topic, especially if it funny or entertaining. However if it is a spitwad between the bashers and pumpers, I will delete it. If it is a complaint about how the board is moderated, I will delete it. I will be happy to respond to anyone about my choices as moderator via PM or e-mail, but it is not on topic for this board.
IDCC price action - Kick a buck
Watching the progress of our little gem keeps reminding me of a phrase from this scene in Cool Hand Luke.
Ronnie, great analysis, as usual
Thanks for not only connecting the dots, but for providing a thorough examination of why other potential dots don't make sense. As always, you look to find what you believe is true, based on a logical study of the known facts. You present your findings without bias, whether they be positive or negative, or whether or not they support a prior position of yours. Thank you for taking the time to share here.
I hope your recovery is going well.
Frank
NukeJohn,
My sincere thanks to you for all you share here. You are a valuable poster and I appreciate your generous sharing of your extensive DD.
Maybe I'm missing something, but this statement of yours doesn't make sense to me.
If the EU Commission tries to do something questionable toward IDCC, I think Nokia's goose is really cooked.
How would that play out?
Thanks,
Frank
Thank you to all the attendees today
I truly appreciate your generous sharing of your experience today. It is a great benefit to all of us out here in cyberspace. I am very grateful to everyone who contributed their first hand experience.
After listening to the audio and reading the comments of those who were at the hearing, I am very excited about the future. Over a decade of watching IDCC get to the edge of greatness only to hit a roadblock has tempered my anticipation a bit, but given that the stock price has just about doubled over the last four months, it would make a delay much easier to handle. Unless you bought during the brief run up during the internet bubble, every long term long should be looking at some healthy gains. If we can get a good settlement out of Nokia now, IDCC can be one of the few tech stocks to actually eclipse their bubble run up. Congrats to all the long timers who have followed this saga through all the ups and downs and stayed invested in this long time undervalued stock.
Merry Christmas to all
IDCC has provided some extra Christmas cheer for investors in this fine company. I'm looking forward to another great year in 2012. We are finally seeing the stock move towards its true value. Enjoy the ride and your success.
No dividend on Treasury shares
Treasury shares are shares repurchased by the company. They have no voting or other rights.
It really wouldn't matter if they received a dividend - the dividend would go back to the company.
IDCC is a different breed of growth stock
Most companies achieve growth by producing more, whether it be opening additional locations or increasing production so that sales can grow. To achieve this growth the company will need large capital outlays, so they need to conserve cash. In most cases they will need to raise money through debt or even selling additional stock. As a result, very few growth companies have large cash reserves or positive cash flow from operations.
Dividend paying companies tend to be companies that have grown to cover most of their target market and are generating consistent positive cash flow, which is returned to the shareholders.
IDCC doesn't fit into common catagories for stocks. IDCC is growing. IDCC has a HUGE cash hoard. IDCC is generating significant positive cash flow. IDCC has no significant capital requirements to achieve continued growth. The growth of the overall market for products containing their IP will provide significant growth. IDCC just needs to maintain licensing at current per unit levels to achieve solid growth. When you consider that almost half the market is still unlicensed, it is not hard to imagine IDCC achieving super-fast growth. This growth can be achieved without the need for accelerating expenditures.
It boogles my mind when people express concern about IDCC's ability to grow if they pay a dividend or buy back shares. If one looks at IDCC's financials and reasonable expectations for the future, it is clear that IDCC has no cash flow worries for the foreseeable future under the current business model. Those that get caught up in labeling IDCC as a growth stock and thinking that it needs to conserve cash like a typical growth stock don't understand IDCC.
Jim, insiders are going to sell shares
It does not mean there is bad news on the horizon or that the insiders don't believe in the company. It appears that they may have preset plans with price objectives, so that when the stock price rises they sell a portion of their holdings. I think that institutional investors understand that option stock is viewed as compensation by the recipients.
I don't see it being hypocritical for them to encourage folks to buy shares while they are selling. What they are saying is the IDCC is a stock that should be a part of your portfolio. The officers have their job, their retirement and a part of their portfolio invested in IDCC, so any financial advisor would advise diversification, averaging the sales price by selling steadily over time and selling into strength. I know we here see a very bright future and can't understand why anyone would ever sell, but selling is a critical part of the investment process.
What if your neighbor was a baker and told you to come in to his store to buy bread, yet he sells that same bread. He's got a lot of cheap product that he sells to raise cash while asking others who don't have bread to buy it. Would you think he is as dumb as a rock?
Stock dividends and dilution
The lowering of EPS due to a proportionate distribution of shares is not dilution IMO. I don't consider stock splits to be dilutive. Yes, EPS will go down, but each shareholder's total earnings for their holdings will be the same. Meaning if you take the number of shares held pre-stock dividend times the "undiluted" earnings, it will be the exact same amount as the post stock dividend shares times the "diluted" earnings.
Dilution is when shareholders suffer a reduction in their ownership, which occurs when shares are issued to others. For example, stock options granted for compensation, stock used to acquire another company or the sale of additional shares to raise capital. That dilutes each shareholder's share of the profits and that is dilution. The shareholders ownership being reduced without selling any shares is dilution. IMO stock dividends and stock splits are not dilutive. And if people want to call it dilutive, it is still not harmful to shareholders.
Not negatives for IDCC's dividend
1. They are not paying stock dividends. Even if they were, it would not cause dilution because everyone gets the same ratios of shares, so your holdings before and after a stock dividend would be the exact same percentage, therefore no dilution. Who ever wrote that is fairly ignorant, and immediately makes me discount any other opinions they might offer.
2. IDCC is NOT typical, which is why I find it such a great investment. It does not need to build plants or open stores to expand. It needs to create IP, which is a fairly stable cost, and license it. Therefore it can grow with limited additional cash requirements. Since growth generates positve cash flow far beyond the need for additional expenses, this is not an issue for IDCC.
3. The good ideas to grow the company are new patents, which they are working on. No capital or other costs needed for that. I LOVE the IDCC business model because of the very small marginal expenses related to sales growth.
4. Yes, the company can cut or stop the dividend at any time, but that negative would only reverse the positive of declaring a dividend. And on the flip side, they can also increase the dividend at any time.
Look at IDCC's cash position, it's ongoing cash receipts from licensing versus the expense run rate, and I see no problem for IDCC to maintain a $1.00 a year dividend for many years to come with only limited additional licensing. If they are successful in getting Nokia and Ericcson licensed and resigning LG, the dividend can be much higher in the future without causing any cash flow problems.
There have been many posts that glorified the dividends. Here are some negatives that I found on internet
1. If the company pays dividends in a form of shares, this will increase the numbers of outstanding shares, further dilution.
2. No more unprecedented growth rate: typically, mature, profitable companies pay dividends. If a company thinks that its own growth opportunities are better than investment opportunities available to shareholders elsewhere, the company should keep the profits and reinvest them into the business. For these reasons, few "growth" companies pay dividends. Eg., the progression of Microsoft through its life cycle demonstrates the relationship between dividends and growth. When Bill Gates' brainchild was a high-flying growth company, it paid no dividends, but reinvested all earnings to fuel further growth. Eventually, this 800-pound software "gorilla" reached a point where it could no longer grow at the unprecedented rate it had maintained for so long. So, instead of rewarding shareholders through capital appreciation, the company began to use dividends and share buybacks as a way of keeping investors interested.
3. Indicate that the company has run out of good ideas for the future growth of the company.
4. Company can cut or stop the dividend at any moments.
Posting about IDCC trades
That is not something I said I'd delete - entry and exit points for trading this stock is on topic to this board IMO. When credible people post when they load up or take some off the table, that is a sure sign of someone's feelings at that moment. This is a board concerned with how best to profit on IDCC stock, whether it be buy and hold or to do some trading. I have no problem with folks posting trades (exception, short term/day traders posting on quick trades on moves of less than 5%).
What I said I'd delete were posts about trading other stocks or commodities, especially those made to prove that the investor of the other stock was smarter/dumber than holding IDCC. Those posts are just juvenille bickering in disguise, which I feel is off topic.
Scary board for Halloween
A lot of noise and bickering adding no helpful information about the stock. I went back about 150 posts and deleted 50 or more posts.
When I see them in a timely manner, I will delete any posts regarding how other investments that folks have chosen are doing. If one wants to compare IDCC to their industry (such as QCOM) or the market in general, that is relevant to IDCC as a stock. However if someone wants to just prove their brilliance or other's stupidity by posting about their personal investments, whether or not compared to IDCC, I will delete them. That is off topic.
Oh, by the way, IDCC shares are performing great. It is a nice steady climb, based on solid fundamentals. This is a great development for IDCC shareholders. Enjoy it - try not to let the nattering nabobbs of negativism bother you. They have no affect on the stock or the price. Feel free to counter there points, but discussions about biases and lack of integrity are not on topic.
I LOVE the dividend. I believe it will help broaden IDCC's appeal. This should give this nice run some legs to run to a new high in the near term (excepting the bubble), assuming the markets continue to hold up well.
IDCC is on the accrual basis of accounting
It pays tax on income when it is earned and deducts expenses when they are incurred. Good cash management would require planning for expected tax liabilities. There is no legal requirement to put aside cash for future taxes.
I don't see this as a concern for IDCC, nor do I see it as a reason for IDCC to be hoarding this level of cash.
Put options
One does not have to own the shares to buy a put option. If you buy a put and don't own the shares, you will sell the put when you want to close your position. No need to buy shares and exercise the put.
I strongly suggest caution before moving into options. They are high risk investments, and most buyers of put and call options lose money, often the entire contract price. This doesn't mean that they are never appropriate to use, but one should have a good understanding of how they work. Generally they are speculative investments, looking for a big return, which is very high risk and has a low probability of success. If they are used as a hedge, then the potential loss on the option can be offset by good performance of the stock, and poor stock performance is offset by income from the option, reducing overall risk and overall expected return.
Put options.
You would be buying the 50 put options for $13,750 to open your position (you own the put contracts), which would give you control over 5,000 shares.
The put option contract gives you the right, but not the obligation, to put the shares (sell them) at the strike price ($26 in your example) at any time before the contract expiration date (March 19, 2011 in you example). When you sell the put options or exercise them (sell you 5,000 shares at $26), you will close the position, as you will no longer own any put contracts. The $13,750 is what you paid for the put contacts, so that is your cost, just like when you buy a stock, that money is your cost and when you sell the stock you get whatever you sell it for, and your purchase price has no bearing on what you get.
If the price is above $26 on March 19, you would not exercise your option and it would expire worthless. You would have a $13,750 short term capital loss on the transaction and you would still own all your shares. You can sell your shares at any time whether you own the put contract or not. If you were to sell your shares, and then the stock was under $26 at March 19, then you could sell the put options, which would be valued at about $26-actual share price.
Board clean up
I've deleted about two dozen posts today. Items about other stocks, Apple phone batteries and a back and forth about dividends that was mainly about a misunderstanding. If anyone wants to repost the substantive part of their post, go ahead, but as they stood it was generating a lot of nothing posts.
Frank
IDCC's third quarter
It consists of April, May and June revenues from the per unit licensees and the July, August and September revenues from the fixed fee customers and the July, August and September expenses.
dndodd, very interesting
Thanks for bringing this to the board. I suggest all interested investors check out the article.
DClarke, you make a good point
LG is not priced in. There is not a great deal of downside risk right now. I just don't see significant upside until a big boy signs or resigns. I do expect IDCC to bounce around in the 20s, moving with the overall market, until there is significant news.
I am very comfortable with IDCCs long term prospects and the risk/reward at current prices. However if I was looking for an entry point to buy IDCC, I would be waiting for the 24s as I don't see any big news coming anytime soon.
You are not in the ostrich camp because you are aware of the LG situation and have factored it in to your analysis. That is far different than those who decry any mention of it and think it is a non-issue.
Thanks for your post - my posts did not properly point out that while I believe the upside is limited waiting for visibility going forward, I also believe the downside is limited due to the massive cash balance and healthy revenue stream from ongoing licensees, even excluding LG after 2010.
Sorry, I'm not an ostrich
I don't close my eyes to the future, even if it is a potential negative. It's not like this is a secret that we're exposing. It is a major risk to the share price, and IMO one of the factors keeping IDCC's valuation so low.
When looking at PE's, investors commonly look at current and next year PE ratios, as well as growth rates. Many here want to look at the results and growth through 2010, then moan about how there is a conspiricy to keep the lid on the price, conveniently ignoring the very real concern to many investors, albeit the minority on this board, that LG may not renew, and 2011 will not be as good as 2010. To ignore that possibility, and any other possibility, is not wise.
If you think LG is a slam dunk, load up. IMO, if IDCC were to sign an LG renewal on the same terms as the last contract, we're looking at the mid 30s very quickly. No, I wouldn't expect LG to be signed by now, but given the current circumstances, I don't think that a prepayment discount is enough of an incentive to sign. I won't belabor the point as this discussion does upset some. I've had my say and don't need to convince anyone.
So you can play see no evil, hear no evil, speak no evil if you like, but I need to manage my investment based on what I believe is likely, not what I hope.