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Rates? Yes, I agree that the rates will probably be lower, but the absolute amounts will probably be higher.
Naw, you're reading too much into that. If IDCC succeeds in getting X amount per year for 2G and at least 2X amount per year for 3G then it will have a powerful river of cash that can fund other projects to increase its growth. More successful growth engines, higher valuation.
Here's a great article on the economics of the fabless chip business. Howard said that they were not properly capitalized to get into this business, but that's understandable. Howard is a lawyer whose top priority this year is to put the Nokia and Samsung contractual issues to bed because 2003 is the transition year for IDCC in terms of setting a financial baseline to judge future progress. At some point, however, I think IDCC revisits this issue again and may have to rewire the entire organization for growth opportunities that don't necessarily have to be in wireless.
Fabless model proving less than fab
By Anthony Cataldo
EE Times
May 19, 2003 (12:08 p.m. ET)
SAN MATEO, Calif. — Would-be semiconductor entrepreneurs are playing by a different set of rules these days. The time when, as the old joke went, all it took to start a company were four Indian engineers and an American guy to do the marketing are over, and startup chip makers are beginning to look like an endangered species.
A total of five chip companies that didn't have their own manufacturing plants were founded last year, according to the Fabless Semiconductor Association. That's a paltry figure compared with the 53 that launched in 2001 and the 92 founded in 2000. Even in 1995, before the dot-com craze, 23 chip companies took root. The rising costs of designing and producing a chip, at a time when funding is tight and the customer base more discriminating, have turned the screws.
"The fabless startup model is under stress," said Rob Chaplinsky, general partner with Mohr, Davidow Ventures (Menlo Park, Calif.). "It costs you a lot of money to get to market and get proven silicon working. There's no room for error, and you have to run things really efficiently and pick your markets carefully so that there's revenue to justify material, labor and tools."
With the advent of dedicated foundries like Taiwan Semiconductor Manufacturing Co. in the late 1980s, young companies could focus on design and buy manufacturing capacity as needed, making them partially immune to the wild swings of the industry. Altera, Broadcom, Nvidia, Xilinx and others owe much of their success to this model. Fans of this model are also quick to point out that integrated device manufacturers are looking more like their fabless counterparts as they sell or mothball their own fabs.
But the days when design and production costs could be ignored because money was easy to come by are no more. Many young fabless companies, for example, can no longer afford the $3 million it takes to buy their own design tools, so they are contracting with ASIC vendors. But this just defers the cost by shifting it to the price of the wafer. Materials, operations and miscellaneous costs can add up to about $4 million. The big one is labor, which can run to $8 million. Factor in the uncertainties of keeping up with Moore's Law and the picture gets more bleak.
Chaplinsky said Mohr, Davidow is not closing the door to all chip companies, but wants to deal only with those that promise a big payoff. Among them are startups devising a programmable or reconfigurable architecture that can work in many applications, not an application-specific device that can attract many competitors chasing a single market. "We'll invest in a fabless company but it's got to address a $200 million to $300 million socket opportunity," Chaplinsky said.
Even more attractive, he said, are companies that don't make chips but help others do so. Among those that Chaplinsky has funded in recent months are Brion, which addresses design-for-manufacturing, and OnWafer, which deals with critical dimension control.
"The challenge is trying to achieve the same benefits of Moore's Law by extending existing technology," Chaplinsky said.
Not all VCs are this skeptical about chip startups. Irwin Federman, general partner with U.S. Venture Partners (Menlo Park), said that the problems with mask costs, physical design and power consumption that companies face as they move to 90- and 65-nanometer design rules are by no means showstoppers.
"There are technology shifts that are changing the economics of the business but I don't view that as being a deterrent for investment opportunities," Federman said. "The belief that these changes are going to affect the efficacy of silicon going forward is to be distracted."
To Federman, there's ample opportunity for young companies to develop new application-specific products, largely because it's getting so expensive for individual vendors to design their own ASICs. "The volumes for consumer and industrial products are enormous-beyond anything we've seen before," he said. "It's not clear to me that the incumbents will come in and take these markets."
One powerful ally on the side of startups is TSMC, which derives most of its revenue from fabless companies and has a vested interest in helping new ones. The foundry giant plans to expand its multiproject wafer, or "shuttle," program to reduce the initial cost of silicon prototypes as one way to help startups manage costs. TSMC also wants customers to incorporate design-for-manufacturing steps into their design flow prior to GDSII, a tactic that should help avoid costly re-spins.
Startups totaled five last year, a new low, as design and production costs soared and funding nosedived.
"TSMC has a huge business to protect and they've become a critical element of the entire infrastructure," Federman said.
Federman said that to gain the blessing of the VC community, a startup should be able to get the job done with $25 million to $35 million, though the limit varies depending on the VC. Most say that the company should have partners or customers lined up early, and should be prepared to make a payout in three years.
"What they want to see is a company that reaches certain milestones, and if you reach them you have a better chance of coming back for more," said one president of a still-secret chip startup who recently finished a round of funding. "It's a shorter leash. You have to have a bulletproof proposition, an outstanding management team and an execution track record, and that's just to get you in the door."
That's assuming the VC in question hasn't lost faith in chip startups. "My sense is that the Irwin Federman school is alive and well, but they are still very nervous," the startup's president said.
http://www.eet.com/semi/news/OEG20030519S0056
I think this type of news would normally blow over right away since the revenue recognition issues flow from a binding contract, but unfortunately, it comes during a time when some of IDCC's shareholders have repeatedly pounded management with gratuitous criticisms about excessive compensation and dilution. If one distrusts management then how can one trust the accounting?
More significant bear raids have been started with far less.
From October 2002....
Howard Schilit Takes On Nokia
By Kenneth Li
Senior Writer
10/25/2002 05:27 PM EDT
Accounting guru Howard Schilit is taking on Nokia, charging the world's largest wireless phone company with employing questionable accounting methods that boosted third-quarter revenue.
Schilit's firm, the Center for Financial Research and Analysis, released a report criticizing the handset maker for its "subjective revenue-recognition method" regarding sales of third-generation wireless-network equipment.
As a result, the report said, Nokia was able to report that quarterly sales rose 2.5% to 7.22 billion euros ($7.04 billion), after declining for four consecutive quarters. Excluding the 430 million euros in revenues related to 3G equipment, the company would have reported a decline in sales of 3.6%, or 6.79 billion euros, according to Schilit's calculations.
Nokia spokesman Keith Nowak defended the company's accounting, saying Nokia had disclosed its revenue-recognition criteria as far back as September 2001, when it first started shipping equipment to its approximately 30 carrier customers. These customers include Finnish carrier Sonera (SNRA-Nasdaq) , U.K.-based Hutchison Telecom and Italian operator Wind. "This shouldn't be a surprise for anyone," Nowak said. "We've been saying this for a year."
Revenue related to new network equipment -- which consists of base stations and radios that transmit phone calls and wireless data -- is recognized in terms of technology milestones, he said. For instance, the first stage of revenue related to the company's 3G technology was recognized, or considered an actual sale on the income statement, at the end of the third quarter after the successful live testing of a new network, he said.
Schilit criticized the company for this practice, saying it makes revenue figures hard to verify as an outside observer. "With technological milestones as revenue-recognition triggers, we note the difficulty that an outside analyst faces in determining the appropriateness of the company-defined technological milestones in addition to confirming that such milestones have indeed been met."
Schilit added, "As such, CFRA considers this revenue recognition to be more subjective and susceptible to management discretion."
However, Samuel May, a wireless-equipment analyst at U.S. Bancorp Piper Jaffray, said the practice of recognizing revenues through milestone targets is commonplace in the wireless-equipment industry. Nokia's revenue-recognition method is "not an issue," he said, noting that the practice is common among competitors such as Ericsson (ERICD-Nasdaq). "It's no different than what they've done before. It's not like they've changed the rule midway," he said.
Schilit, a former accounting professor, is no stranger to controversy. He has been dubbed by market watchers as the Sherlock Holmes of Wall Street and the most hated man on Wall Street. He reportedly spotted financial red flags in Enron's books as early as 1995.
Nokia's American depositary receipts closed the day up 74 cents, or 4.6%, at $16.89.
http://aol.thestreet.com/tech/kennethli/10050472.html
From the SEC............
Many have asked why we issued SAB 101. The answer to this question is very simple: Revenue recognition is an issue that surfaces in a significant number of the Commission's enforcement cases and is the largest single issue involved in restatements of financial statements.
For example, a March 1999 report entitled Fraudulent Financial Reporting: 1987-1997 An Analysis of U.S. Public Companies, sponsored by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (the COSO Report), indicated that over half of financial reporting frauds in the study involved the overstatement of revenue.
Recent enforcement cases, including those involving Sunbeam, which I'll touch on later, Microstrategy, and Livent, just add to the long list of enforcement actions alleging improper revenue recognition. Based on research performed by my office, restatements for revenue recognition also result in larger drops in market capitalization than any other type of restatements. Furthermore, the issuance of SAB 101 was part of an extensive, coordinated effort to combat abusive earnings management practices, which were first highlighted in a speech by former SEC Chairman Arthur Levitt in September 1998.
http://www.sec.gov/news/speech/spch495.htm
IDCC was one of the first companies to implement SAB 101.
i have a post early on record where i posted he was someone not to trust...
Yes, I remember this one and you turned out to be right on the money.
Mr. Roath has been a part-time consultant and Chairman of the Advisory Board to L.E.K. Consulting, a shareholder-value consulting firm, since May 1997.
From the proxy.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS
IDCC vs Nasdaq (US) vs Nasdaq Telecommunicatons Stocks (Global)
1997 to 2002
.
.
1997 1998 1999 2000 2001 2002
.
.
IDCC 100.0 149.0 2,449.0 176.5 316.7 475.5
Nasdaq (US Companies) 100.0 141.0 261.5 157.8 125.2 86.5
Nasdaq Telecom
Stocks SIC 4800-4800
US & Foreign 100.0 165.0 295.0 125.7 84.2 38.8
.
.
The above graph assumes that the value of the
investment in InterDigital Communications Corporation,
the Nasdaq Stock Market U.S. Companies Index, and the
Nasdaq Telecommunications Stocks Index was $100 at
the market close on December 31, 1997 (the last
trading day in 1997), and that all dividends paid by
companies included in the Nasdaq Stock Market U.S.
Companies Index and Nasdaq Telecommunications Stocks
Index were reinvested. During this period the Company
has not declared or paid any dividends on its Common
Stock.
Management and the board of governors together have the ultimate goal of maximizing shareholder value. In theory, management looks after the day-to-day operations, and the board ensures that shareholders are adequately represented. But the reality is that many boards are made up of management. When you are researching a company, it’s always a good idea to see if there is a good balance between internal and external board members.
OTHER GOOD SIGNS ARE THE SEPARATION OF THE CEO AND CHAIRMAN ROLES AND A VARIETY OF PROFESSIONAL EXPERTISE ON THE BOARD FROM ACCOUNTANTS, LAWYERS, AND EXECUTIVES. It’s not uncommon to see boards that are comprised of the current CEO (who is chairman), the CFO, and the COO, along with the retired CEO, family members, etc. It’s not to say that this makes for a bad investment in itself, but, as a shareholder you should consider if a corporate structure like this is beneficial or not for you.
http://www.investopedia.com/articles/basics/03/022803.asp
INSIDERS
These directors are responsible for approving high-level budgets prepared by upper management, implementing and monitoring business strategy, and approving of core corporate initiatives and projects. Inside directors are either shareholders or high-level management from within the company. Inside directors help provide internal perspectives for other board members. These individuals are also referred to as executive directors if they are part of company’s management team.
D. RIDGELY BOLGIANO, 70, has been a director of the Company since 1981. Mr. Bolgiano has been a Vice President and Chief Scientist of the Company since April 1984, and has served as Chairman of the Board of Directors of InterDigital Technology Corporation, a wholly-owned subsidiary of the Company, since May 1996. Mr. Bolgiano has been affiliated with the Company in various capacities since 1974.
HOWARD E. GOLDBERG, 57, became a director of the Company in November 2000. Mr. Goldberg also serves as Chief Executive Officer and President of the Company, positions he has held since November 2000 and January 2001, respectively. Prior to holding such positions, Mr. Goldberg served as Interim President from September 1999 until January 2001. Mr. Goldberg also served as Executive Vice President—Strategic Alliances from October 1998 to September 1999, Executive Vice President, General Counsel and Secretary from May 1995 to October 1998, and Vice President, General Counsel and Secretary from December 1994 until May 1995. In addition, Mr. Goldberg held the position of President of InterDigital Patents Corporation and InterDigital Technology Corporation, each a wholly-owned subsidiary of the Company, from October 1998 to December 1999, and from January 1999 until July 2001, respectively. Mr. Goldberg has been affiliated with the Company in various capacities since 1993.
OUTSIDERS
While having the same responsibilities as the inside directors in determining strategic direction and corporate policy, outside directors are different in that they are not directly part of the management team. The purpose of having outside directors is to provide unbiased and impartial perspectives on issues brought to the board.
ROBERT S. ROATH, 60, has been a director of the Company since May 1997. Mr. Roath was Chief Financial Officer and Senior Vice President of RJR Nabisco, Inc. (“RJR Nabisco”) from April 1995 to April 1997 and Corporate Controller and Senior Vice President at RJR Nabisco from September 1990 to April 1995. Mr. Roath has been a part-time consultant and Chairman of the Advisory Board to L.E.K. Consulting, a shareholder-value consulting firm, since May 1997. Mr. Roath is also a member of the Advisory Board to the Roundabout Theatre, a New York City not-for-profit classic theater and is a member of the Advisory Board of the Robert H. Smith School of Business at the University of Maryland.
JOSEPH S. COLSON, JR., 55, became a director of the Company in April 1998. Mr. Colson retired as President of International Regions & Professional Services at Lucent Technologies, Inc. in April 1998, where he was responsible for sales of network systems products and services to global service providers since June 1997. Mr. Colson has been a director of Crescent State Bank since December 1998. Mr. Colson is also on the Board of Trustees of North Carolina State Engineering Foundation, which supports the School of Engineering at North Carolina State University, his alma mater
STEVEN T. CLONTZ, 52, became a director of the Company in April 1998. In January 1999, Mr. Clontz became President and Chief Executive Officer of StarHub Pte., Ltd. (“StarHub”), an info-communications corporation specializing in fixed and mobile telecommunications services located in Singapore. Mr. Clontz has also served as a director of StarHub since 1999. Mr. Clontz was President and Chief Executive Officer of IPC Information Systems, Inc. (“IPC”), a New York corporation which developed, manufactured and sold specialized telecommunications products and services to the financial trading industry, and served on the Board of Directors of IPC from December 1995 to December 1998.
HARRY G. CAMPAGNA, 64, Chairman of the Board of Directors, has been a director of the Company since April 1994. Mr. Campagna has been the President, Chief Executive Officer and Chairman of the Board of Directors of Qualitex Co. for more than the past five years. Qualitex Co. is involved in the manufacturing of items for the garment apparel and textile industries.
POP QUIZ: Which idiots on this message board criticized this board of directors for having too many "part-timers?" LOL.
Beware of the Basher(Hypester)
The Investing Guys (Investopedia.com)
Whether just starting to invest online or a seasoned online veteran, you've probably seen the message boards and chat rooms that focus on stocks. Many of these boards make rag mags look tame. These sites churn out rumor after rumor, 24 hours a day--some of the more popular boards are getting upwards of 10,000 posts daily.
No technology has changed the financial industry more than the Internet. In the pre-Internet era, there was no way for individual investors from every corner of the globe to meet and talk about the prospects and threats of companies. The free-flow of information has changed the very way we invest. This mass communication, however, does not come without a price. The anonymity of the Internet has also allowed unscrupulous people to deviate and control artificially the price of a stock. We refer to these people as bashers(hypsters).
The Paid Basher/Hypester
This profession may seem fairly simple, but there is a science behind it. Bashers'(Hypesters) intentions usually go further than trying to push down (or up) the price of a stock for their own personal gain. Supposedly, reputable companies and investment firms use bashers in situations such as takeovers. You see, when one company wants to buy another, stock price is king. If a multi-million dollar company's stock changes even by one dollar, the price of the takeover is a difference of millions of dollars. A basher who successfully pushes down the price of a stock can receive a very lucrative compensation. (Just as someone that gets paid to drive the stock price up before selling, pump and dump)
There are three major types of bashers(hypesters): advanced, intermediate and beginner.
An advanced basher(hypester) spreads false or misleading information about a company. They deal in facts to counter--with articles, news reports, and opinion surveys that gave a (positive or) negative impression about the company--every posting from a long investor.
An intermediate basher(hypester) tries to weasel their way into the confidence of longs, and creates doubt using rumor or innuendo.
Finally, a beginner basher(hypster) attempts to create confusion in the chat room by distracting other posters with satire, name-calling, and pointless arguments. The beginner's goal is to make sure no serious discussion of the stock takes place.
Bashers(hypsters) have very professional strategies. First, they develop a character to draw attention, and to build trust from others on the chat board. Bashers are careful never to use profanity or vulgarity because that would cause people to ignore them. Quite often they will respond to posts in a way that ridicules the questioner for asking such a "stupid" question. The purpose is to get a reaction from other posters. The more reaction, the more the room will be disrupted. To throw yet another monkey wrench into the mix, bashers(hypsters) often send in another person to side with the longs(or shorts) of a stock. Again, the idea behind this is to distract people, and to spread rumors and confusion throughout the room.
Bashing( and hyping) is happening everyday. It's important for any investor to realize there are people out there who make a good living at hyping stocks. Participating in a chat forum is both enjoyable and sometimes insightful, but always remember to look at each message with the awareness that its sender may have motives other than being sincere.
A lot of truly ignorant comments have been made about corporate governance on this board by people who apparently don't know how to google stuff like this to get the proper perspective.
Board Trends 1970s to the 1990s:
"The More Things Change..."
By James Kristie
Editor, Directors & Boards
Presentation to the
Institutional Shareholder Services
Annual Client Conference
February 26, 1999
Washington, D.C.
I'm delighted to share with you some thoughts about how boards have changed throughout the years, which I hope you will find interesting. Actually, some of the changes are quite startling. But don't be surprised when I get to the end of my review and end up at the point where I say, "The more things change, the more they remain the same."
[Moderator] Rich Koppes has just said that boards have come a long way, and they really have. It's amazing how far we've come just in the last 25 years. This following information is from data gathered over the years by the executive search firms, such as Spencer Stuart and Korn/Ferry, the Conference Board, and other assorted board observers. Let me quickly run through some of the major changes.
Trend 1: Outside Directors. The trend to having a majority of outside directors is of relatively recent vintage.
It was only in 1966, for example, that Standard Oil of New Jersey (now Exxon Corp.) added its first outside directors to its board. Even of more recent vintage, it was in 1976 that Tribune Co., the big Chicago-based media concern, added its first outside directors to its board. One of my early interviews I did at Directors & Boards magazine was with Tony O'Reilly, the head of H.J. Heinz Co. This was in 1983, and at that time the Heinz board had 18 members, nine of whom were company officers.
So within the last 25 years we have gotten to the point where the average board has two to three inside officers, and the trend that many would like to see is only the CEO on the board. I think we're moving in that direction.
Trend 2: Smaller Boards.
About 25 years ago, a good many U.S. boards were composed of 16 to 25 directors. Only five years ago, many boards had from 15 to 18 directors. We're now moving down to the 10 to 13 member range and we seem to be stabilizing there. For comparison purposes, here are the two largest-cap companies we have in the United States, General Electric and Microsoft. GE has a board of 15 -- 10 outsiders and 5 insiders. Microsoft has a board of 7 -- 4 outsiders, 3 insiders. Even more in contrast is Yahoo (which on a good trading day apparently has had a market cap exceeding General Motors): it has a board of 5 -- 3 outsiders and 2 insiders.
I am going to be doing a study of the new crop of Internet company boards. My supposition going in is that we may see some very different patterns of board composition developing among not only the Internet companies but the whole new generation of technology company boards. That should be a fun study to do and you can keep an eye out for that in a future issue of Directors & Boards.
Trend 3: Fewer Meetings.
Companies are gravitating toward an average of 8 meetings a year, down from 10 to 12 meetings -- an indication, some say, that boards are operating more efficiently than in years past. GE, for example, had 8 meetings last year; Microsoft had 6 meetings.
To the extent that smaller boards and fewer meetings lead to more focused board discussions and make a company more attractive to recruiting highly accomplished executives as directors, then these are good trends.
Trend 4: More Diversity on Boards.
Seventy-two percent of boards now report at least one woman director. This is up from 11% 25 years ago. Fifty-five percent of all boards now report an ethnic minority member. This is up from 7% in 1973, and 31% 10 years ago.
My expectation is that board diversity will increase. I think we can look to boards to start trending younger, have more international flavor, and have fewer traditional CEO types and more senior operating and financial executives and technology-oriented executives (which would also cause boards to trend younger).
Trend 5: Compensation.
The major trend here is that 25 years ago, only 4% of companies compensated their directors with some form of company stock. Today I see studies that show anywhere from 75% to 90% of companies providing some form of stock arrangement to their directors.
Trend 6: Rise of the Nominating Committee.
When I was preparing a timeline on the evolution of corporate governance for an article in Directors & Boards, my research showed that General Motors was one of the first companies to create a nominating committee of the board. That was in 1972. A Korn/Ferry study found that in 1973 only 2% of companies had nominating committees of the board. That figure rose to 60% in 1988, and today the prevalence of nominating committees is about 75%.
According to Craig Fuller, chairman of the Global Board Services Practice at Korn/Ferry, among the trends that have done the most to reshape boards over the past 25 years has been the rise of the nominating committee -- an important factor in the shift from insiders to more independent outside directors.
Other Trends. These are future trends -- trends that, according to the latest Korn/Ferry study, directors themselves believe will become generally accepted practices in the next five years.
-Formal CEO performance reviews by the board will grow rapidly and be well established in most companies by the year 2003.
Board performance reviews will increase but more slowly than CEO reviews.
-It will be the norm for a retiring CEO to leave the board. Right now only 30% of companies require the retiring CEO to leave the board.
-CEOs and directors will be required to own a specific dollar amount of company stock.
-Meetings of directors without the CEO present will be held regularly by all companies.
-Committee chairs and committee members will be appointed by a board and not by the CEO.
-The number of inside directors will continue to decline and the number of truly independent directors will continue to increase. Just recently, as an example, we saw Morgan Stanley Dean Witter reduce its board from 15 to 13 members, cutting 2 of 4 inside board seats.
-Lastly, written statements of corporate governance policy will become commonplace.
You will note that many of these trends represent structural changes to boards. The structural changes are important because of how they can lead to process changes.
A problem that we've had with our system of corporate governance is that -- as Paul Stern, one of my past authors, so well put it -- directors by law have always had all the power that they need to govern. What they have not had was the process.
As these structural trends have impacted, and continue to impact, the process that allows boards to act with optimal effectiveness, then they are worth close attention, encouragement, and applause.
That's what has changed. Now, what has remained the same? The way I see it, what has remained the same is what I call the ultimate board trend. What is this ultimate board trend? Here is my definition of it:
A board of directors...with the intelligence, integrity and courage...to exercise dutiful overview of management...and contribute meaningfully to the strategic affairs of the corporation.
If there is any agreement in the room on this definition of an ultimate board trend, then I would say this has been a trend in place since the early years of this century -- going back to the first and second decades when Congress began breaking up the Money Trusts, the J.P Morgan-backed directorships, and the atrocious interlocking of boards.
Let me conclude by reading this following passage. You might be surprised when it first appeared. The passage begins:
"In the past few years I have perceived on the boards where I serve, and from conversations with other CEOs and directors, that some fundamental changes are taking place. Directors are reexamining their roles, their functions and their responsibilities. Directors are asking questions now before they accept membership on boards. Directors are thinking about their liabilities to stockholders and to beneficiaries of company pension plans...."
The passage continues:
"An increasing number of CEOs as well have concluded that the passive roles of boards are not enough, that boards are responsible to the owners, the stockholders, that the old pattern of board practice must be changed, and that boards can be important involved elements in the top management process, setting policy and monitoring performance."
I might have published that passage 10 years ago in Directors & Boards. I might even have published that a year ago. Conceivably I could publish a variation of that a year from now.
Does it surprise you that that passage originally was published in 1976? That was the year Directors & Boards was founded -- but it did not appear in Directors & Boards, where you might expect us to say something like that. I looked for a more neutral commentator on this ultimate board trend and I found it in the Harvard Business Review. It was written by Myles Mace, one of Harvard's luminaries in the study of governance.
So that's why I say, "The more things change, the more they remain the same." This ultimate board trend has been playing out on a long and winding road. The road has gotten a little more paved and straight in the last 25 years, thanks to the structural changes I mentioned earlier.
There will always be some potholes and barriers on this road, and there will be some offramps that don't lead anywhere, and there may be no final destination on this road. But I think we can be confident that we're on the right road, going in the right direction, and that the destination is worth traveling to.
Thank you very much for your kind attention.
http://www.directorsandboards.com/brdtrnds.html
Theoretically, what is the role of the corporate board of directors? Ideally, how should the board of directors protect shareholder interests and uphold corporate integrity?
Isn't it a conflict of interests when CEOs of Fortune 500 companies sit on the board of directors at other Fortune 500 companies? Doesn't this merely set up ideal scenarios for insider trading and ethics violations?
Ronald Berenbeim responds:
________________________________
The board owes a fiduciary duty to shareholders.
As Felix Frankfurter asked, "to whom and for what?" It is not an easy question. Much of the answer relates to the process used in board decisions which must be informed, free of conflicts of interest and have a rational basis. A rational basis requires a legitimate corporate purpose and information to support the decision.
The "Business Judgment Rule" cuts directors considerable slack.
In a recent case, it was determined that The Walt Disney Company board of directors did not violate their fiduciary duty to Disney shareholders when the board approved $140 million dollars in severance benefits for Michael Ovitz. Ovitz had served as Disney's president for 14 months before being fired by the Board.
There is a potential for conflict of interest when Fortune 500 CEOs serve on one another's boards. However, it is no greater than the potential for independent directors to have such conflicts [as was the case in Enron] and at least it is on everyone's radar screen. It is also becoming increasingly uncommon.
Many companies severely limit the number of boards on which the CEO can serve and it is possible that some do not allow the CEO to be a director all. This limitation/prohibition is not surprising since board service is supposed to be a time consuming enterprise.
Frank Torres responds:
________________________________
It is recognized that the board of directors has a duty to safeguard the interests of the company's shareholders. This fiduciary duty is imposed both under state law and by the courts.
The conclusions reached in a report by the Governmental Affairs Committee of the U.S. Senate on the "Role of the Board of Directors in Enron's Collapse" provides some insight on how a board of directors should protect shareholder interests and uphold corporate integrity:
.... much that was wrong with Enron was known to the board, from high risk accounting practices and inappropriate conflict of interest transactions, to extensive undisclosed off-the-book activity and excessive executive compensation.
...the subcommittee identified more than a dozen red flags that should have caused the Enron board to ask hard questions, examine Enron policies, and consider changing course. Those red flags were not heeded. In too many instances, by ongoing along with questionable practices and relying on management and auditor representations, the Enron Board failed to provide the prudent oversight and checks and balances that its fiduciary obligations required and a company like Enron needed.
In the aftermath of the corporate scandals the New York Stock Exchange recently proposed changes that would affect companies listed there. Those changes, among other things, would require that a majority of a company's board must be comprised of "independent" directors -- directors who have no material relationship with the company. Often board members are selected because of their expertise and experience as business leaders.
Generally, corporate boards of directors are on notice that they will be held accountable for fulfilling their responsibility to diligently oversee management. As we have seen with the recent indictment of ImClone's CEO and the investigation of Martha Stewart, there are existing laws and enforcement mechanisms that deal with the problem of insider trading.
Olivia Kirtley responds:
________________________________
The members of the board of directors oversee corporate affairs on behalf of shareholders. They act as advisors to management in setting strategy and vision in enhancing shareholder value and as overseers of management and their actions and decisions, which includes monitoring financial reporting and compliance in protection of shareholders.
In protecting shareholder interest, a board needs to have access to appropriate information on critical business issues and decisions in advance of meetings with adequate time for preparation, near perfect meeting attendance, and ongoing education regarding the company's business environment and issues. They need to have attention to detail, the ability to grasp the critical issues, and should ask probing questions of management, auditors and advisors, as well as possess the ability to assess the adequacy of the responses.
They should ascertain that policies, procedures and controls are in place and followed with regard to business practices and behavior. As the demands on and the oversight responsibilities of board members continue to increase and become ever more challenging, it is more important than ever to have board members who are qualified, objective, committed and inquisitive. This also includes having members with the right mix of qualifications and background to effectively serve on the various committees of the board, including audit, compensation and governance.
As to the conflict of interest issue, a CEO of an unrelated company can bring a wealth of knowledge and experience that will greatly benefit the effectiveness of the board and protect shareholder interest. Assuming there is no material business connection between the two companies, there is no incentive for anything other than being a wise adviser and overseer on behalf of the shareholders. In addition, every board member has the fiduciary responsibility to act in the best interest of the company and its shareholders.
No question that the halcyon days of investigative discovery are behind a lot of us here, but what about all those folks who are just getting started?
The SEC filings are always the best place to start one's due diligence. IDCC actually does a very good job of providing an overview of the wireless industry. Nokia, Qualcomm and Ericsson also provide excellent overviews.
SCO Group, inheritor of the intellectual property for the Unix operating system, has sued IBM for more than $1 billion, alleging Big Blue misappropriated SCO's Unix technology and built it into Linux.
The suit, filed Thursday afternoon in the 3rd District Court of Salt Lake County in Utah, alleges misappropriation of trade secrets, unfair competition, breach of contract and tortious interference with SCO's business, the Lindon, Utah-based company said. SCO also sent a letter Thursday demanding that if IBM doesn't meet various demands, SCO will revoke IBM's license to ship its version of Unix, called AIX, in 100 days.
http://news.com.com/2100-1016-991464.html?tag=nl
Patents a virtue for IBM
By John G. Spooner
Staff Writer, CNET News.com
January 12, 2003, 9:00 PM PT
IBM will announce on Monday that it was the top recipient of U.S. patents in 2002.
Big Blue was awarded 3,288 patents during the past year, making it the top recipient among private sector companies for the 10th year in a row, according to the U.S. Patent and Trademark Office. Canon ranked second during in 2002 with 1,893 patents.
IBM has generated just over 22,000 patents during the last 10 years, but those patents have changed with the times, IBM researchers said.
Many of the company's newest patents are related to servers; grid computing; and self-healing, or autonomic, computers and how to better put them to use for customers. Most of the new patents also fit into the framework of IBM's computing on demand initiative, announced late last year, said Ravi Arimilli, an IBM research fellow.
"The patent process has a lot to do with what customers are thinking about or where IBM wants to go into the market," Arimilli said. "The new technologies we're pursuing are for where we see growth in the (information technology) industry."
The computing on demand initiative seeks to provide self-organizing, self-healing computer networks that IBM or its customers can use to provide computing power like a utility. Many of the patents cover related technology.
Arimilli himself had 78 patents awarded during 2002. The technologies his patents cover went into IBM's Power4 processor for servers--as well as into its eventual successor, the Power5--and into the p690 server, which is built around the Power4.
"I'm kind of like the thread that crosses all these different technologies and then produces an architecture that IBM goes to market with," Arimilli said, of working with various teams inside the company to develop new products.
Arimilli is part of a small army of employees IBM calls "inventors," who contribute patents.
Big Blue, which spent $5.5 billion on research in 2001, has a cadre of about 3,000 researchers, though about 5,000 people across the company contributed to its 2002 patent total.
This year's patents came from several areas around the company. Although a large chunk--600--came straight from IBM Research, about 1,200 patents were awarded for work done by IBM's Technology Group, which includes the company's Microelectronics Division. Microelectronics is responsible for processors like the PowerPC.
IBM's server group, which stewards the Power4, contributed nearly 600 patents to the total. IBM's software group had 470 patents in 2002.
Meanwhile, Canon, with 7,300 researchers and engineers, spent 218,616,000 yen, or about $1.66 million, on research and development, according to its 2001 annual report.
IBM's nearest competitors, NEC, Hitachi and Hewlett-Packard, were ranked fourth, fifth and ninth, respectively.
One reason IBM is so prolific, aside from its large budget, lies in its philosophy, Arimilli said.
"We have a lot of young engineers at IBM. We give them big responsibilities," he said. "When we did Power4, (Intel engineers) were doing Merced (Intel's Itanium chip). We probably had one quarter of the people working on the microprocessor as they did.
"We said (to the young engineers), 'You've got to break these barriers. You've got to be better than these guys.' The mode is almost the underdog approach of trying to be better, and you'd be amazed with the results. They seem to respond to the challenge...It's really neat watching this happen."
http://news.com.com/2100-1001-980262.html
this board has lost sense of reality.
You can say that again. I was surprised to find that many of the perennial whiners on this board have a very poor understanding of the global IT industry, in general, and the emerging IPR industry, in particular.
That lack of perspective shows up clearly in the poorly thought out comments about executive compensation and dilution that are often devoid of useful facts. Like many here I'm coming around to the view that this board has seen its best days.
IDCC's largest institutional holder's IPR plays.
.
BARCLAY'S GLOBAL INVESTORS
45 FREMONT ST 17TH FL
SAN FRANCISCO, CA 94105
(415) 597-2639
.
.
Shares Change %Change Value
Date Held (Shares) (Shares)
.
QCOM 3/31/03 28,438,629 2,177,845 8.29% $ 861.69M
RMBS 3/31/03 2,743,324 1,341,357 95.68% 41.04M
IDCC 3/31/03 2,138,475 353,620 19.81% 55.28M
.
.
Sure, Joel. You may have to explain it to Mickey first.<G>
By the way, Investors Hub just bought Silicon Investor.
Some people insist on using the rear view mirror to drive forward. What can we really do except to get the hell out of the way! LOL.
INTERDIGITAL (IDCC)
PSR@Different Sales Growth Rates
2003-2007
.
.
.
15% PSR@ 20% PSR@ 25% PSR@
p.a. $1.42B p.a. $1.42B p.a. $1.42B
.
2002(A) $ 88M 16.1 $ 88M 16.1 $ 88M 16.1
2003(E) 200M 7.1 200M 7.1 200M 7.1
2004 230M 6.2 240M 5.9 250M 5.7
2005 265M 5.4 288M 4.9 313M 4.5
2006 304M 4.7 346M 4.1 391M 3.6
2007 350M 4.1 415M 3.4 488M 2.9
.
Assumption: 2003 Sales baseline is $200M
It now appears that the new accounting rule change
regarding option expensing will either go into effect
in 2004 -- a presidential election year -- or 2006
-- congressional mid-terms.
The expected hit on S&P 500 earnings ranges from
10%-20%. There are 75 technology companies in the
S&P 500. The expected hit on tech company earnings
is expected to be much higher -- up to 60%-70%
according to some estimates -- although everybody
understands that those numbers include the
illusory costs of underwater options.
However, expensing options is expected to change
corporate behavior, particularly compensation
policies as part of the larger issue of corporate
governance. That takes time so many PE-oriented
valuation approaches will suffer from the lack of
"comparables." It will probably take at least
4 quarters for PE-based valuation approaches to be
meaningful again once the new rule goes into effect
in 2004 or 2006.
My hunch is more people will rely on cash flow and
PSR analysis until the new PE numbers settle down.
I don't think it will affect an emerging growth
company like IDCC all that much.
If cash flow is the one constant in the valuation
of a company from start-up to maturity then
IDCC's PS is more important than PE at this early
stage of IDCC's growth when earnings are still
immature (read: unpredictable). PE becomes more
important later on when IDCC's earnings power start
to mature (read: predictable and easier to model
according to various discounted cash flow methods).
Hey Joel! Welcome back!
Gee anyone take a look at the stock float of BIG companies?
In the same way that different levels of dilution are
acceptable at different stages of a company's growth,
there are also different ways of making money at
different stages of a company's development from
start-up (PS/cash flow) to growth (PS/cash flow/PE)
to maturity (PE/dividends).
During IDCC's turnaround stage (1999-2003), for example,
most of the people here just loaded up on the stock
and options anytime this stock got to the $5-$10 range
imply because the risks and rewards were outstanding
especially if you were paying attention to the
monetization of the patent portfolio.
Anyway, for some perspective here's a comparison of
the royalties generated by IBM, QCOM and IDCC from
1992 to 2002. IBM is, obviously, the most successful
licensor in history. QCOM is probably going to catch
up with IBM in the next five years.
Before the 2003 settlement IDCC already stood out in
terms of IP efficiency as measured by cumulative
royalties per share! We also know that more royalties
are potentially going to come in the next 4 years than
the previous 22 years.
Note that it took IBM 5 years to reach the $400M
milestone after exceeding the $100M milestone. It took
QCOM 4 years to exceed the $400M milestone after
exceeding the $100M milestone.
10-Year ROYALTIES
IBM vs QCOM vs IDCC
1992 to 2002
.
.
IBM QCOM IDCC
.
.
1988 ~$ 30M
1989 170M
1999 180M
1991 220M
.
.
1992 ~$ 250M $ 10M $ 3M
1993 400M 16M 0M
1994 500M 29M 29M
1995 600M 45M 68M
1996 850M 100M 29M
1997 1.0B 152M 6M
1998 1.1B 218M 92M
1999 1.3B 454M 66M
2000 1.5B 705M* 51M*
2001 1.4B 777M 53M
2002 1.3B 851M 88M
.
Total ~$10.2B $ 3.4B $ 485M
.
Diluted
O/S(2002) 1.73B 809M 56M
.
Cumulative
Royalties
Per Share
1992-2002 $5.90/share $4.20/share $ 8.66/share
.
No. of
Patents
(FY2002) ~24,000 (Global) 900 (US) 240 (US)
.
.
Note: QCOM and IDCC numbers were extracted from 10Ks.
IBM only started to break out its royalties numbers
this year so its historical numbers were culled from
different sources including CHI Research and SSB.
.
*SAB 101 transition
.
.
Note again: Royalties usually have gross margins of 90%.
I guess you would agree that our future cash position will not be dependent on the excercise of options if the company can execute on their stated expectations
I don't think a small growth company can ever have too much cash. For example, assuming all the 24-month prepayments come in and IDCC exits 2003 with $400M in cash/investments, IDCC will still have to burn through operating expenses (currently $80M a year) until the next round of optional 24-month prepyaments. Recurring cash royalties won't fully pay the opex bills for some time. Again, why would any shareholder want IDCC to conduct 3G negotiations with declining cash balances?
We want the cash balances to keep on going up so IDCC can get better 3G contracts. Think of the cash/invesment account as a margin of safety. The higher the margin of safety, the higher the market cap this company's fundamentals can support.
More importantly, until the accounting rules are changed, options remain this company's main advantage in the perennial recruitment war for top 5% managerial and technical talent. If IDCC is not competitive in this recruitment war, its ability to improve its patent portfolio will be limited and will most likely affect their ability to monetize their 3G patent portfolio fully.
The issue of dilution is a red herring raised by purists who don't seem to understand that there are acceptable levels of dilution for growth companies at different stages of their life cycle. The fact of the matter is that every technology company that has exceeded the $1B revenue milestone has had to dilute its stock to raise the funds to finance its growth.
We need to focus our advocacy on getting the rules changed IMO, not on creating trouble for one of our personal investments.
....especially not one that has outperformed 99% of the total stock market for the last 2 years due to genuine improvements in its fundamentals. LOL.
My hunch is that executive compensation experts use two distinct peer groups for determining the appropriate compensation levels for a company like IDCC.
The first one is the global wireless industry where aggressive deep-pocketed companies like QCOM and Nokia set the market prices for managerial and technical talent. Top 5% talent. Supply and demand.
The second one is the emerging IPR industry where, again, aggressive companies like QCOM, RMBS and ARMHY set the market prices for managerial and technical talent. Top 5% talent. Supply and demand, again.
IDCC had virtually no influence over those skyrocketing compensation levels before the March 2003 settlement. After the March 2003 settlement, it still has very limited influence; albeit, limited influence that is on the rise thanks to its stock performance and rising cash balances.
It either pays above market rates for talent set by others or it remains small. A small company can't afford stand still if it wants to command premium growth multiples (P/S) consistently.
Therein lies the conundrum for those ponderous shareholders who want to micro-manage the affairs of this company out of some weird sense of entitlement.
I'm curious nobody has commented on this.
IDCC exited 2002 with $88M in cash/investments and 1Q2003 with $95M in cash/investments. It would have exited 1Q2003 with less cash than 4Q2002 if not for the net CASH proceeds from option/warrant exercises/ESOP of $7.8M. These include the proceeds from insider activity earlier in the year that caused so many individual shareholders to panic.
1Q2003 recurring royalties were $17M. $11M of that total came from the DEFERRED REVENUE account in the balance sheet through the DEFERRED REVENUE RECOGNIZED line in the cash flow statement. That $11M is cash that has already been collected through prepaid or paid-up contracts so the actual amount of cash royalty income that IDCC collected during the quarter was only $6M.
Total operating expense for 1Q2003 was $20M Actual cash royalties of $6M accounted for 30% of total operating expenses for the quarter. Option exercises of $8M accounted for 40%.
But should this be surprising?
IDCC spent a total of $250M in operating expenses from 1999 to 2002. It generated $40M in cash from option exercises during that same time or 16% of total opex. IDCC would have exited 2002 with ONLY $48M in cash/investments if not for the $40M in cash/investments generated by option/warrant/ESOP from 1999 to 2002!!!
Think about this carefully. Without the option exercises from 1999 to 2002, IDCC would have conducted final negotiations with ERICY or gone to trial with only $48M in cash/investments and an operating expense structure of nearly nearly $80M for 2003, most of that in cash!!!
For some perspective, look at how QCOM elevated its liquidity position after the March 1999 settlement with ERICY. QCOM generated $1.313 BILLION in cash proceeds from option exercises in 1999 when it was the best stock performer in the entire market. QCOM's cash/investment account went from $303M in 1998 to $1.7B in 1999 considerably strengthening their ability to collect royalties and sign new deals.
Not surprisingly, QCOM started to generate more cash from its operations than cash from its balance sheet maneuvers (including option exercises) after the 1999 settlement. Before that 1999 landmark settlement, QCOM generated more cash from its balance sheet maneuvers than cash from its operations despite the fact that they grew sales tremendously from $107M in 1992 to $3.3B in 1998.
http://www.investorshub.com/boards/read_msg.asp?message_id=1010462
a Management that seems to know what they are doing..and have plenty of incentives to make themselves extremely wealthy..and drag some stockholders kicking and screaming all the way into a better life style..
LOL. A perfect way to end the week. Have a good weekend.
I'm off to watch the Matrix sequel.......again!
Some CHI Research tidbits:
In 1989, the international top 10 patenters in the U.S. system included 5 Japanese firms, 2 American firms and 3 European firms, but in 1998 the list contains 7 Japanese firms, 2 American firms, one Korean firm and no European firms. The common thread among all the Asian firms is their heavy involvement in information technology. Thus the general shift in U.S. patenting away from Europe and towards Asia is bound up with the global shift towards information technology. This evidence indicates that Europe, in general, has missed the rise of information technology.
There are, of course, areas where European companies are strong. Half of the top 10 pharmaceutical companies are European, and half are American; half of the top 10 chemical companies are European, 4 are American, and only 1 is Japanese.
http://www.chiresearch.com/about/newsletter/april99.php3
CHI’s March 1997 Newsletter "Industry Technology Has Strong Roots in Public Science" showed that some 73 percent of the science papers cited by U.S. industry patents were public science – authored at universities, laboratories, and other organizations primarily funded by public resources. The new finding reported here is that the papers cited in U.S. patents are preferentially drawn from the most highly cited, highest quality research. More specifically, a U.S. paper in the most highly cited 1% of scientific papers is 9 times as likely to be cited in a patent as is a randomly chosen U.S. paper.
http://www.chiresearch.com/about/newsletter/jul00.php3
However, numerous validation studies have shown the existence of a strong positive relationship between citations and technological importance. For example, Carpenter et. al. (1981) found that patents related to IR 100 invention awards are cited twice as often as typical patents. Also, Albert et. al. (1991)
showed that patents identified as important by industry experts were highly cited. Other studies have revealed a positive relationship between patent indicators and stock market valuations (Deng, Lev and Narin 1999) and between highly cited patents and increased sales and profits in the pharmaceutical industry (Narin, Noma and Perry, 1987)........
....................Narin and Breitzman (1995) showed that the top 10% of inventors are 3-4 times as productive as average inventors.
http://www.chiresearch.com/docs/tpordc.pdf
In this study CHI examined all 1,071 U.S. firms with 15 or more
US patents between 1996 and 2000. One-third of these firms
employ fewer than 500 people. Each of these small firms has
survived long enough to establish a substantial public record of
innovation represented by their patent portfolio. We label such
small firms “serial innovators.”
We found that serial innovators obtain patents that are more
technically important than the patents of large firms — 28% more highly cited, twice as likely to be among the top 1% of cited patents, and twice as closely linked to scientific research.
The serial innovators are concentrated in health and information
technology. Finally, serial innovators are more locally networked
than large firms.
We also looked briefly at the number of small US firm patents in the “occasionally patenting” range (one to 14 patents over five years) and estimate that the total small firm share of U.S. patenting is similar to the small firm share of manufacturing employment about 43%.
http://www.chiresearch.com/docs/nltxi1.pdf
From the 10K:
....
Interdigital (IDCC)
Patent Portfolio
As of 12/31/2002
2001 2002
....
....
US patents 199 240
Foreign patents 403 520
....
US patent applications NA 375
Foreign patent applications NA 1443
....
....
ITC’s patents have effective terms of up to 20 years from the date of the first application upon which the patent is based.
....
....Intellectual property, in the form of patents, trademarks and copyrights, has long been a basic asset of commercial organizations, but it has traditionally received little attention from strategic decision makers. Over recent years, however, more and more technology-based companies are recognizing the vital role played by their intellectual property (IP). As the June 2002 edition of Forbes ASAP notes, "Until recently, intellectual property had been an arcane subject reserved for geeks and mad scientists. Today, IP is the currency of our new economy."
In their 2001 annual reports, companies such as IBM, Pfizer, Intel and Merck all refer specifically to the importance of intellectual property to their commercial success. These references are not mere lip service to a fashionable idea. Companies are becoming increasingly active in their management of intellectual property, and are exploiting its value through extensive licensing agreements. In difficult market conditions, the revenues generated by these agreements can provide a major boost to company profits. For example, in 2001 alone, IBM generated over $1.5 billion in revenue from licensing its intellectual property, following many years of increasing revenues from this source, as shown in the figure below.
(Chart source: Salomon Smith Barney, reported in Berman B. (ed)"Investing Wisely in Intellectual Property," Wiley, 2002)
Companies are also setting up incentive schemes to encourage their employees to become more proactive in patenting new inventions. One of the most famous of these schemes is Hewlett-Packard’s Invent campaign, under which HP inventors receive financial incentives for invention disclosures and granted patents. After launching this program, Hewlett-Packard doubled its number of patent applications between 1999 and 2001. Smaller companies have also introduced similar schemes.....
For example, InterDigital Communications has recently started to offer stock options to employees who produce patents. In the first six months of 2002, InterDigital was granted almost as many US patents as it had been in the whole of 2001......
http://www.chiresearch.com/about/newsletter/nov02.php3
More on CHI Research.....
.........Yes, many investors have long hazarded guesses about how key patents might pay off. But CHI Research, a consulting boutique in Haddon Heights, N.J., is pioneering a strictly quantitative method. CHI got started in 1968 reviewing patents for the National Science Foundation. It later nabbed corporate clients and, in 2000, branched out to Wall Street with a pricey stock-evaluation service it calls Investor Tech-Line. CHI each month examines nearly 400 companies with strong patent activity, ranking them on investment potential.
Far more important than just the number of patents a company holds, or even how many it is adding, are a battery of more subtle indicators. At the core of CHI's system is something it calls "citation impact." This is a measure of how often a patent is cited by later patent applications and, by extension, its importance. At the same time, CHI checks how many references a patent makes to scientific papers, as opposed to earlier patents. Its hunch is that patents flowing out of academic work are closer to basic science and likely more valuable. The firm also measures what it calls "technology cycle time," or the median age of patents cited in an application. Citing more recent patents can indicate a company is dealing in fresher technologies, with the possibility of greater future profit.
Tests of these theories, first reported in a 1999 paper published in the Financial Analysts Journal and later by CHI itself, are intriguing. CHI's back-test over the 1990-99 period found its picks outperformed the Nasdaq Composite Index in 7 of 10 years and the Standard & Poor's 500-stock index in 8 of 10.
Investor Tech-Line, for which CHI last year received its own patent (you can view it at www.chiresearch.com), is slowly drawing the attention of institutional investors. Christopher Rowane, manager of the $60 million Huntington Mid Corp America Fund, attributes much of the fund's outperformance since its start a year ago--a 4.5% gain, vs. a 2.6% loss for its average midcap rival--to relying on patent research for a first cut through the clutter of stocks....
http://www.chiresearch.com/about/newsletter/nov02.php3
There you again with that new age valuation nonsense.
1) QCOM went from $108M in sales in 1992 to $3B in sales in 2002.
2) Diluted O/S went from a split-adjusted 312.5M shares in 1992 to 809.3M shares in 2002 or by 159%. By the end of FY02, at least 73% of QCOM's cash and investment account of $3.177B came from the issuance of common stock (options) since 1992.
http://www.investorshub.com/boards/read_msg.asp?message_id=1010462
3) Market cap went from a few hundred million dollars in 1992 to nearly $30B in 2002.
Following your simplistic logic that a company would be worth more if the dilution was less, QCOM should now be worth 159% more simply because the dilution rate during the last 10 years was 159%?
Using IDCC, its sales went from $40M in 1992 to $88M in 2002 -- or by 120% -- while diluted O/S went from 24M in 1992 to 55M in 2002 -- or by 129%. Following your logic again, IDCC should be worth 129% more simply because the dilution rate during the last 10 years was 129%
Of course not.
Most terms of the partnership weren't revealed. Nokia says it will get a small royalty fee on each chipset sold. One goal is to grab momentum from Qualcomm.
http://biz.yahoo.com/ibd/030516/tech_1.html
Did you catch this one, Rox? I recall that after the 3/14 settlement Ericsson also announced that they were going to be more aggressive in going after GSM royalties, particularly royalties from those pesky Asian handset manufacturers.
If I am correct in reading this then we may be seeing the European manufactuers -- Nokia, Ericsson, Siemens -- starting to set up patent barriers to offset the significant manufacturing cost advantages of the Asian manufacturers.
Samsung is a good example. Here's the kind of vertical integration advantages that Samsung brings to the table that I'm sure Nokia is watching closely.
From that Hiptop analysis:
Samsung ASIC with an ARM7 core acts as the primary applications processor, which itself is supported by a 16-Mbyte Samsung SDRAM. Samsung also supplies the lithium-ion battery and high-resolution LCD, reinforcing the notion of a deeper design involvement by the South Korean manufacturer.
Another example is the camera phone modules that are only available from 2 Japanese manufacturers.
20%-30% component cost advantage here, 20%-30% component cost advantage there and pretty soon a complacent manufacturer is on the same kind of slippery slope that Ericsson found itself on a few years ago.
I still can't believe that the MMs couldn't take out the May $25s. Open interest was only 1,609 contracts. I thought that was a layup.
it will continue to be a judgment call on a case-by-case basis
Yes, judgement calls usually involve quantitative and qualitative assessments.
Litigation sidetracked IDCC for much of the 90s, but they're now poised to grow. In order to grow I think they need to leverage their balance sheet better even though their 24-month prepayment strategy is going to bolster cash reserves substantially in the near term.
For reference, QCOM grew revenues from $108M in 1992 to $387M in 1995 -- or by 260% -- while diluted O/S (unadjusted for splits) grew from 39M in 1992 to 70M in 1995 -- or by 80%.
The opportunities for IDCC are different now, of course, but the importance of financial management remains the same. As you know, QCOM had to change and adapt its business plan several times to blast through the $500M, $1B, $2B and $3B sales milestones. Great financial management was crucial to QCOM's abiity to grow from $108M in 1992 sales to $3B in 2002 sales.
Yes, I agree. As always, the question is how much? I don't think a pre-revenue GBT and Widax can look forward to an IPO any time soon so IDCC would be the most promising avenue for them to monetize their technology.
For instance, Nokia has its own WCDMA patent portfolio and it also has MFL deals with QCOM and IDCC. This gives Nokia the strongest negotiating leverage against the 100+ companies claiming essential 3G IPRs since most of these companies, particularly the small companies, will not have the resources to fight a rich company like Nokia. This, in turn, puts other handset manufactuers at a cost disadvantage. Nokia has consistently shown that they can turn a minute cost advantage into punishing market share gains.
BONSAI vs REDWOOD???
Net Proceeds from Options/Warrants (IDCC) =
Net Proceeds from issuance of common stock (QCOM)
1995-2002
....
....
IDCC IDCC QCOM QCOM
Cash Net Proceeds Net Proceeds Cash
and from options, from issuance and
FY Invest. warrants of common stock Invest.
...
1995 $64.5M $ 13.1M $ 499.2M $ 579.0M
1996 55.0M 10.0M 23.6M 154.3M
1997 25.8M 0.4M 32.5M 808.9M
1998 52.3M 0.8M 49.8M 303.0M
1999 83.1M 12.4M 1.313B 1.685B
2000 89.0M 12.2M 143.8M 2.520B
2001 90.4M 2.6M 132.3M 2.581B
2002 87.5M 12.3M 119.7M 3.177B
....
Total $ 63.8M $ 2.313B
....
....
....
BONSAI vs REDWOOD???
Weighted Average Number of Shares (Diluted)
1995-2002
....
Fiscal
Year IDCC QCOM
....
1995 46.5M 460.4M
1996 46.5M 526.7M
1997 48.2M 575.1M
1998 48.8M 591.7M
1999 50.5M 649.9M
2000 57.3M 800.2M
2001 53.4M 756.0M
2002 56.1M 809.3M
....
Dilution
from 1995 to 2002 20.5% 75.8%
....
Sales (FY1992) $ 39.7M $ 107.5M
Sales (FY1995) $ 85.0M $ 386.7M
TTM Sales (2003) $104.3M $ 3.8B
Market CAP(2003) $ 1.5B $ 24.3B
....
....
To quote teecee word for word................
....
WHAT IS WRONG WITH YOU PEOPLE?<g>
....
....
Here's a closer look at Schilling's work at Golden Bridge and Widax.
From the 1999 IEEE oral history.......
I left Interdigital at the end of 1994, and I basically took a year off. In 1996 I became chairman of Golden Bridge Technology, a company that wanted to get involved with the third generation standard for wireless to provide that higher quality. There the idea was to use the matched filter as a receiver while Interdigital and Qualcomm use correlator receivers.
To use a correlator receiver you really need a pilot signal to do it right. The idea at GBT was to use matched filters, which did not need the pilot signal, but which used a header, which was a little different philosophy. Each signal was preceded with a header, and so it was packet oriented because the matched filter detected a particular packet. This concept of packet orientation is extremely important for third generation and fourth generation technologies because it allows you to synchronize to each packet. This is a much more efficient operation and much more immune to the vagaries of Doppler and multipaths, etc.
I then worked with ATT and GBT, and formed the TIA Group 46.1, which was to standardize the Golden Bridge Technology in the TIA (Telecommunications Industry Association, a US standards body) for third generation use. We had a number of companies, including IDC, that agreed with our philosophy and they worked with us to develop the standard. Then we found that the Japanese standard body (called ARIB) and the European standard body (ETSI) also agreed with our design. Their design and our design were very similar. Our committee then decided to accept the ARIB and ETSI proposal, and we basically merged all of our standards into one and agreed to work together.
At that point, we were joined by T1P1, which is another US standards group. What got me very upset was when Madeleine Albright, US Secretary of State, decided that the 3G proposal being developed in TIA 45 was the U.S. proposed standard and that wide-band CDMA was a foreign proposed standard. She made that comment in the newspapers. It was totally wrong.
There were two U.S. proposed standards for CDMA, a narrow band standard that was being developed by Qualcomm, and a wide band standard -- TIA 46.1. The International Telecommunications Union (ITU) has combined these two and other proposals together into a single, multi-mode, 3G standard. If I look at my role in 3G, I was one of the prime movers in using this matched filter based technology. Indeed, I have been preaching wide-band CDMA for commercial systems since 1985, when everyone was telling me that narrow band CDMA, Qualcomm’s system, was the way to go. Everyone is now working on wide-band CDMA, and it will be adopted. The idea of packet transmission, communications with packets is being adopted. I am very pleased that what I have been working at for most of my life it seems to becoming a reality. As a result of my work in wireless communication, I received the Armstrong Award by the IEEE Communications Society in 1998. I am very proud of that award because I am very proud of the work that I did.
http://216.239.41.100/search?q=cache:69uox_iZQbQJ:www.ieee.org/organizations/history_center/oral_his....
And this is the technology he is working on at Widax.
The Technology
The WIDAX products employ the spread spectrum technique called direct sequence Wideband Code Division Multiple Access (W-CDMA) coupled with a technique called Orthogonal Frequency Division Multiple Access (OFDMA).
The W-CDMA technology allows simultaneous transmission of information over a common channel by assigning each of the signals a unique code during transmission.
The OFDMA technique spreads a single user over a wide bandwidth by breaking up the high-speed data into many low-speed packets and transmitting these low- speed packets over individual carriers.
Both methods are resilient to fading - the enemy of wireless transmission. Although these technologies have been known for several decades and have been used for military anti-jam communications, commercialization has only recently been possible with the advent of integrated digital high-speed custom components that lowered the size, cost, and power consumption dramatically.
Noting its former usage, it is not surprising that these communication methods are inherently private, as opposed to the current non-secure cellular radio schemes.
The occupied bandwidth and signal handling capability is higher than any other existing system, including the recently ETSI standardized 3G systems. For the reasons explained below, the performance of W-CDMA in combination with OFDMA in a wireless environment, is far superior to any existing modulation scheme.
In a wireless environment, a signal transmitted from one point to another arrives via many paths. When these multipath signals arrive at some received point, they all add and subtract with each other, resulting, at times, in deep "fades" where there is very little signal strength and the reception is completely disabled.
Figure 1 depicts the spectrum of both a wideband and narrowband (all Cellular systems) signal as they are transmitted. In Figure 2, it is seen how multipath affects the signals. Note how the narrowband cellular type signal is diminished considerably and only a small amount of energy remains, while only a very small portion of the wideband energy is lost.
The methodology employed in the WIDAX product design allows the proprietary OFDMA/W-CDMA engine circuits to be implemented using a low gate count and low power consumption, thereby yielding low cost products.
This next generation technology will replace all existing wireless data systems that have been developed to date, which are designed for low information rates, capable of carrying at most, full speed facsimile.
Using a series of one to six kilometer radius cells along with smart antenna technology, the resulting WIDAX network will deliver superior wireless performance and have the highest capacity, data rates, and quality than any other communications method. In addition, the system is inherently private and not subject to interception, as opposed to the current cellular radio scheme.
http://www.widax-corp.com/tech-e.htm
Note the reference to smart antenna technology and IDCC's recent investments in this area. Also, most of the top people at Widax appear to be the same folks who headed Golden Bridge.
2) It is logical to assume that by 2007 the vast majority of infrastructure and handsets being sold will have 3G functionality. Some will be 3G-only; some will be dual mode (i.e. 3G and 2G capable). In addition, by 2007 the cost of the 2G functionality in a 3G-capable device will be minimal (i.e. the majority of the cost will be due to 3G functionality). These types of products will be covered under a 3G license; not the 2G license that was just signed.
Good point, Ed. Below are some examples of the kind of products that will be common later in the decade. Note the price points of these cutting edge products. Then assume typical annual cost of good declines as these products make their way into the mainstream of a global wireless market that will probably have an installed base of anywhere from 1.5B to 2.0B during the second half of this decade.
The most optimistic case for 3G is that the persistent overcapacity in the semiconductor industry will drive costs so low that it will be much cheaper for a carrier to move from 2G to 3G than to upgrade from 2G to 2.5G.
Compact silicon drives color phones
The Sony-Ericsson T68 mobile phone exemplifies the kind of feature-rich, high-margin handset the wireless industry is banking on for future profits. Its hardware design reflects the trend toward more compact, powerful silicon.
The T68 packs an impressive feature set into a compact 84-gram package. With a color LCD, triband "world phone" GSM support, General Packet Radio Service data capability, and an IrDA-plus-Bluetooth interface for cable-free connectivity to other gadgetry, the T68 represents a new class of mobile phones fighting the commoditization tide........
...........By our estimates, Bluetooth and the color display add $30 to $40 to the typical $80 GSM handset hardware cost-of-goods sold, for a $120 (or so) total phone manufacturing cost. With retail for the T68 well north of $400, the profit potential of feature-infused handsets seems clear. Whether users upgrade will depend on technology advancements, carrier service offerings and economics.
http://www.eet.com/sys/uth/OEG20020514S0031
Danger's Hiptop: 'Arm'ed and dangerous
Danger Inc.'s Hiptop device takes a shot at an emerging youth market for integrated wireless data and voice capabilities, using a unique system form factor. Based on the GSM/GPRS standard, the Hiptop acts as a cell phone, modified Web browser, e-mail client and personal information manager.....
.........The estimated cost of goods sold for the Hiptop is well below $150, suggesting a small net profit given a $200 post-rebate hardware price via T-Mobile. But it remains to be seen whether a device like the Sidekick-aimed at a youth market but service-priced for adults-hits its target.
http://www.eet.com/sys/uth/OEG20030224S0038
Motorola's Bluetooth headset: Headlong into hands-free
Cost-of-goods-sold for the headset was judged to be around $30, well under the $199 retail price. Advances in integration demonstrated with the design (and resulting low cost) imply that inexpensive Bluetooth accessories are at hand, particularly once early premium margins erode. Key Bluetooth connectivity components were around $10 by our estimates, demonstrating that the $5 "promised land" for embedded Bluetooth solutions is within striking distance.
http://www.eet.com/sys/uth/OEG20020806S0018
Mitsubishi's D-2101V 3G Handset: Too Much, Too Early?
The silicon-rich Mitsubishi D-2101V wideband-CDMA phone suggests that the complexity-and therefore cost-of W-CDMA handsets will make it tough to achieve high-volume sales anytime soon. With 43 ICs, a total semiconductor die area of 14.6 cm2, 39 modules or odd-form components and more than 775 discrete components, the D-2101V is two to 10 times more complex than entry-level GSM phones. Correspondingly, cost-of-goods-sold estimates for the D-2101V exceed $250-well beyond both GSM and cdma2000 handset counterparts.
http://www.eet.com/sys/uth/OEG20021223S0017
T-Mobile's PocketPC Phone Edition: Are We There Yet?
Sold outside the United States as the XDA and manufactured by Taiwanese OEM High Tech Computer (HTC), the Phone Edition can rightfully claim tight integration of phone and PDA form and function. GSM voice calls, SMS short-message service, wireless e-mail and desktop-like Web browsing are supported along with all traditional synchronizing PDA features. Product size is similar to that of traditional phoneless PDAs, the result of a single-board construction snugly layered between the front-lit touchscreen LCD and 4-mm-thick planar lithium-ion battery.
http://www.eet.com/sys/uth/OEG20020905S0021
Palm's latest wireless wonder
Our estimated cost-of-goods-sold for the i705 was below $100, less than 25 percent of the $449 retail price. Expect snappy price reductions and/or feature enhancements, since current i705 gross margins appear healthy. Color LCDs would be a sensible addition to provide a more compelling wireless Web-browsing experience-even in the "clipped" format mandated for the i705. Voice capability mirroring the competing Handspring Treo and RIM Blackberry 5810 should also be on the short list.
Meanwhile, our experience with the wireless connectivity proved disappointing, despite our being squarely within the advertised Palm.net/Mobitex coverage area.
Component advancements in the i705 point to a bright future for cost-effective, low-complexity data and voice radios, but the supporting infrastructure and services must improve to make good on that promise.
http://www.eet.com/sys/uth/OEG20020415S0030
How Qualcomm Built A $3.74B Cash & Investment War Chest
As of the last 10Q, Qualcomm had $3.74B in cash and
investments. Below is a table showing how QCOM used
its balance sheet (including options) to bolster its
liquidity and bargaining positions at critical
junctures of its corporate history BEFORE
and AFTER the March 1999 Ericsson settlement.
Net Proceeds
O/S from issuance Cash/
YEAR (diluted) of common stock Investments
......
......
FY1995 ~460.4M $ 499.2M $ 579.0M
FY1996 562.7M 23.6M 154.3M
FY1997 575.1M 32.5M 808.9M*
FY1998 591.7M 49.8M 303.0M
......
FY1999 649.9M** 1.313B 1.685B
.....
FY2000 800.2M*** 143.8M 2.520B
FY2001 756.0M 132.3M 2.581B
FY2002 809.3M 119.7M 3.177B
......
......
*Includes $606M in net proceeds from the issuance
of trust convertible preferred securities of
subsidiary trust.
...
** 2:1 Stock Split (May 1999)
...
***4:1 Stock Split (December 1999)
....
Note: QCOM's unadjusted diluted share count before the
1999 and 2000 stock splits ranged from 50M-70M shares.
Rings a bell?
I would imagine many of them seeing the 1st quarter are adding and those who don't own are starting positions.
Based on Nasdaq numbers, 110 institutions own 17,124,100 shares or 30.8%. Drilling down the list, however, shows that some institutions still have to update their December 2002 numbers, but the trend is clearly our friend.
23 institutions started new positions averaging 112,138 shares. 10 institutions closed out their positions averaging 21,516 shares. Stronger buyers, weaker sellers.
The average institutional holding is 155,674 shares.
63 institutions increased positions by an average of 79,734 shares while 37 institutions decreased positions by an average of 37,063.
These are the kind of accumulation/distribution patterns I like to see.
I think book value methods -- Book Value equals Total Assets minus Total Liabilities -- work best with manufacturing and distribution companies. I don't think it works too well with IPR companies like IDCC because of the complexities associated with valuing patents or ideas. I prefer Cash Flow-based methods.
In IDCC's case, for example, its revenue base and operating cost structure have significantly changed during the last 4 years so that one can now see that total sales per share (>$2.50) is going much faster than total operating expenses per share (<$1.50) as its patent generation has increased. Last year IDCC filed 43% of all outstanding patent applications worldwide.
That said, here's one quantitative approach that combines an interesting form of patent citation analysis with a traditional book value-based valuation method. Note that this purely quantitative approach does not include any qualitative assessment about management.
****************************************************************
..............How does CHI’s crystal ball work? It uses patent citation analysis to figure a company’s technological strength, the power of its unique intellectual property.
Every month CHI Research looks at every approved patent from the US Patent and Trademark Office. The front page of the approval form lists the prior patents that the newly approved technology builds upon. It also lists academic articles used by the newly patented technology.
This patent information, plus a company’s research and development (R&D) expenditures, forms the basis of patent citation analysis.
CHI looks at four indicators:
1) The current impact index is an average of how often a company’s patents are cited by later patents approved within five years. You know a patent is an important technological advance if lots of later patents cite it.
2) Science linkage measures the average number of times a company’s patents cite scientific papers and similar research publications. This indicates how much a patent is building on cutting-edge scientific research.
3) Technology cycle time (TCT) is the median age in years of the US patents cited on the front page of a patent. A company with a low TCT is citing very recent patents and therefore innovating rapidly.
4) R&D intensity in a given year is R&D expenditures divided by sales. It measures how central R&D--the bedrock of technological innovation--is to a company. CHI gets this figure from Schonfeld Associates.
With these four indicators and a proprietary formula, CHI calculates a technological strength rating for every company that was granted at least 50 patents granted over a five year period, and maintains at least 25. Because some industries innovate more quickly than others, CHI compares companies within their own industry. CHI currently covers 300 companies in 22 industries.
"We don’t cover Internet stocks," says Pat Thomas, associate analyst at CHI, "because none of them have enough patents--if any."
With another proprietary formula for each industry, CHI uses a company’s technological strength rating to determine what its market-to-book valuation should be. Market-to-book equals the price per share divided by the book value of the company per share.
Divide this market-to-book value by the actual market-to-book value and multiply the result by the current price and you get a price target for the company.
At the beginning of last year Coherent had a market-to-book ratio of 0.84, but its technological strength indicated it should have been 4.13," says Thomas. "Coherent’s patents were cited 17% more often than the industry average and were six times more likely to cite scientific research. Its technology cycle time showed that it was innovating 10% faster than its peers. As a result, we placed a price target on Coherent of $61.16--(4.13/0.84)*$12.44.
"Our valuations are based solely on the quality of the companies’ patents," says Thomas. "They’re quantitative and purely objective. We have no opinions of our own to inject into the model. Our valuations are not based on what companies tell us. We don’t talk to them. We don’t judge whether management is poor or the stock market is depressed."
http://216.239.53.104/search?q=cache:NpUypTniT1gC:www.chiresearch.com/docs/techinv.php3+book+value+p....
Why don't you take your own advice? LOL. I recall that the only contribution you have made to this option discussion is to insinuate that I am being paid by the company just because I support the continued use of options until the accounting rule is changed. That's about as petty and small-minded as one can get.
Wille Sutton is often quoted as saying that he robbed banks because that's all where the money is.<g>
Well, we may have to add the amount of cash that IDCC is starting to generate to your list of online motivations. The shakedown of deep corporate pockets became an established art form during the last bull market.<g>
I'm off to watch the Matrix sequel!
You're wrong again, Ronny!
I clearly showed you where IDCC’s option grants to managers and directors amounted to 27% according to the proxy
From Page 9 of the Proxy:
As of the end of 2002, the percentage of stock options outstanding held by executive officers was approximately 18% of the total number of stock options outstanding held by all option recipients.
I'm not interested in following your misleading math. That's for the sheep on this board.
I'm not going to play your silly games about ostensibly precise numbers because I want to establish the central point that you have a profound problem with PAY FOR PERFORMANCE systems.
Look at the way you use compensation numbers in a vacuum!!!
Look at the way you twist the solid performance numbers of this company's business plan and its stock beyond recognition!!!
If you distort the PAY in PAY FOR PERFORMANCE and you distort the PERFORMANCE in PAY FOR PERFORMANCE then it's no wonder you come out sounding shrill and fanatical because most reasonable people actually have no problems with that kind of system.
LOL.
Why don't you let him answer for himself? LOL. He's perfectly ccapable of throwing up numbers to cover his losses just like a ssquid uses ink to cover its tracks.
The last time I took apart his premise and the arguments that flowed from that premise, he didn't even bother to respond because he couldn't.
Here, for example, I exposed his total lack of understanding of the IPR business. This is probably too subtle for you but I was showing everybody how his poor understanding of an emerging IPR industry explains his poor grasp of the risks and rewards of business plans and career choices. Note his statement:
If you could come up with about 10 or so small-cap IPR technology companies with similar revenues to IDCC, like Rambus and ARMHY, then I would give much more credence to your study and conclusions.
http://www.investorshub.com/boards/read_msg.asp?message_id=990140
That's classic inside the box thinking.
Here again I took apart his basis for comparing executive compensation packages. He insisted on using 17 small-cap technology companies, none of whom were directly in the licensing business like QCOM, ARMHY and RMBS. He couldn't even bring himself to add those licensing companies to the basket of stocks that he was using as the basis for his claims about executive compensation!!! Again, no response
An individual owner did a study of 17 small-cap technology companies. His findings were that IDCC’s salary and bonuses were significantly more than the other companies, even though these comparable market-cap company’s average revenues were twice that of IDCC.
http://www.investorshub.com/boards/read_msg.asp?message_id=990971
And of course, I also demonstrated that he was just as wrong about the accounting treatment of restricted stock as he was about the negative effect of insider selling on the stock.
There's a lot more, but I'm not that interested in dwelling in the past. I'm more interesting in applying the acid test to his true agenda in the light of today's press release, which by the way, is notable for its dishonest use of an unscientific online poll to support unregurgitated arguments about dilution already discredited on this board.
Notice the pattern? LOL.