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Could increase in fixed-fee revenues be Apple
From the latest 10Q as follows:
...."The increase in fixed fee amortized royalty revenue was driven by a full quarter of revenue from our September 2009 patent license agreement with Pantech, compared to a partial quarter of revenue in third quarter 2009, and our second quarter 2010 amendment to our patent license agreement with an existing customer."
Excerpt from my referenced post as follows:
...."(5) Quarterly fixed-fee revenues of $49.6m have increased from previous quarters. Fixed-fees were $48.1m in the last quarter of 2009 and the first quarter of 2010, and $48.6m last quarter. Evidently there is a new fixed-fee licensee that has not yet been disclosed by IDCC, or an existing licensee's fixed-fees got increased, which would be unusual and unique."
This is the first time to my knowlege that an existing IDCC fixed-fee contract got amended and the fixed royalty fee increased. This explains the unidentified $.5m increase in the second quarter 2010 for a partial quarter, and a total $1.5m increase for a full third quarter ($49.6m total current fixed fee - $48.1m base fixed fee first quarter 2010).
Now as to the possible identity of this existing fixed-fee licensee who amended and got increased by $1.5m per quarter, I think it's a good chance this could be Apple. I doubt it is Samsung, who is a fairly recent licensee. I doubt it is LG whose license comes up for renewal on Jan. 1. LG had a threshold provision, but that was in the existing contract, ie the license would not need to be "amended". I don't think it is Pantech, whose license already includes LTE. (BTW one possible way an existing fixed fee license might be amended is to include an additional standard, such as LTE, that is not part of the original fixed-fee license).
I seriously doubt that the amended fixed-fee license is with Lucent, whose license expires at the end of this quarter. If it were Lucent, it would be a license "renewal" rather than a license "amendment". It can't be Kyocera, who renewed its license as a per-unit license rather than a fixed-fee license. That only leaves two more possibilities: Apple and the previously unidentified fixed-fee licensee.
The unidentified fixed-fee licensee was an existing per-unit licensee, who switched to a combination fixed-fee and per-unit license in the third quarter of 2008. The name of this particular licensee was never identified by IDCC. The fixed-fee part of this unidentified licensee is $1.4 per quarter. I can't rule out this particular licensee, as they may have amended their license a second time to drop the per-unit portion and go exclusively fixed-fee. If so, it would increase this unidentified fixed-fee licensee to $2.9m per quarter.
The other viable possibility is that Apple amended its fixed-fee license from $2.1m per quarter to $3.6m per quarter. They might have added LTE to the existing license, or there may have been some other provision in the license that triggered an amendment. As everyone knows, I have battled many posters over this Apple license being fixed-fee at only $2.1m per quarter for a long time. Now I will be one of the first to admit that finally at last the Apple license MIGHT currently be more than the initial fixed-fee amount.
A recap of fixed-fee licensees and fixed amounts per licensee:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54801956
Loop re Sharp's handset sales in China you said:
...."Regarding Sharp, they have been producing units for China which may account for its success."
I believe you are correct according to the following article:
Tuesday, September 14, 2010
Sharp To Debut Smartphones In ChinaOSAKA (Nikkei)--Sharp Corp. (6753) said Tuesday that it will launch two new smartphones in China next month.
Featuring touch-screen panels, the handsets operate on a system developed by a Chinese firm based on Google Inc.'s Android. The 3.2-inch model will sell for 2,200 yuan, or around 27,000 yen, while the 3.5-incher will go for 3,000 yuan, or some 37,000 yen.
Users will be able to download about 1,000 games and other applications from a special Web site, as well as buy Japanese manga. The smartphones will also offer easy access to Chinese social networking sites.
A string of foreign and domestic firms have been introducing smartphones in China, but most are priced at 5,000 yuan to 6,000 yuan, according to Sharp. By keeping prices down, the electronics manufacturer aims to tap demand among university students and other young users. Sharp says it has no plans at the moment to market the smartphones in Japan.
Sharp's Chinese cellular phone sales topped 1 million units last fiscal year. It aims to rapidly lift sales to the 5 million unit mark. As early as next spring, it will unveil handsets compatible with the 3-D format.
(The Nikkei Sept. 15 morning edition)
My Note: I think Sharp's "last fiscal year" ended March 31, 2010. If Sharp does increase Chinese handset sales to 5m units in its current fiscal year beginning April 1, 2010, then Sharp should be a very significant revenue contributor to IDCC in the upcoming quarters also.
Great quarter by IDCC! A few observations from the earnings press release as follows:
(1) Cash balance = $563.6m or approximately $12.80 per share ($563.6m / 44m shares).
(2) Dividend: regular recurring cash dividend will be initiated beginning in the 4th quarter. This should open-up IDCC to many more institutional investors. From the press release:
"Given our financial strength and confidence in our core licensing business, the Board intends to announce a regular quarterly dividend policy during fourth quarter 2010. The initiation of a regular dividend is expected to be at a level commensurate with other high technology companies with similar growth prospects and cash positions."
(3) Litigation expenses are decreasing significantly. Only $1.4m of litigation expense in the 3rd quarter.
(4) Total revenues of $91.9m in third quarter beat guidance of $88.5m to $90.5m.
(5) Quarterly fixed-fee revenues of $49.6m have increased from previous quarters. Fixed-fees were $48.1m in the last quarter of 2009 and the first quarter of 2010, and $48.6m last quarter. Evidently there is a new fixed-fee licensee that has not yet been disclosed by IDCC, or an existing licensee's fixed-fees got increased, which would be unusual and unique.
(6) "Per-unit royalties of $35.8 million rose 29 percent over $27.7 million reported for third quarter 2009", and increased 13 percent sequentially over the $31.6m per-unit royalties from last quarter.
(7) Sharp broke the 10% revenue threshold in the 3rd quarter for the first time this year. Sharp's quarterly per-unit royalties exceeded $10m ($91.9m x 11%). I can't quite understand how a rather minor wireless player like Sharp can break the revenue threshold, while bigger per-unit licensees like RIM and HTC can't. All that I can figure is that Sharp's royalty rates must be significantly higher than RIM and HTC royalty rates. From the press release:
"Customers that accounted for ten percent or more of the $91.9 million of third quarter 2010 total revenue were Samsung (28 percent), LG Electronics (16 percent), and Sharp (11 percent)."
Rox I don't think the fixed-fee increase is Kyocera
Kyocera renewed its license in the last quarter, and from all indications is now a per-unit license rather than a fixed-fee license. From the second quarter earnings press release as follows:
"Patent licensing royalties of $85.1 million increased $12.4 million, or 17 percent, over $72.7 million in second quarter 2009 driven by new agreements signed subsequent to second quarter 2009, the renewal of a patent license agreement in second quarter 2010, which contributed to both per-unit royalties and past sales, and higher sales by nearly all of our existing per-unit licensees."
From the 2nd Quarter 10Q as follows:
"The increase in fixed fee amortized royalty revenue was driven by the September 2009 patent license agreement with Pantech. This increase was partially offset by the expiration of a fixed fee license agreement in second half 2009, which, as noted above, was renewed in second quarter 2010 as a per-unit agreement."
Qreat quarter by IDCC! A few observations from the earnings press release as follows:
(1) Cash balance = $563.6m or approximately $12.80 per share ($563.6m / 44m shares).
(2) Dividend: regular recurring cash dividend will be initiated beginning in the 4th quarter. This should open-up IDCC to many more institutional investors. From the press release:
"Given our financial strength and confidence in our core licensing business, the Board intends to announce a regular quarterly dividend policy during fourth quarter 2010. The initiation of a regular dividend is expected to be at a level commensurate with other high technology companies with similar growth prospects and cash positions."
(3) Litigation expenses are decreasing significantly. Only $1.4m of litigation expense in the 3rd quarter.
(4) Total revenues of $91.9m in third quarter beat guidance of $88.5m to $90.5m.
(5) Quarterly fixed-fee revenues of $49.6m have increased from previous quarters. Fixed-fees were $48.1m in the last quarter of 2009 and the first quarter of 2010, and $48.6m last quarter. Evidently there is a new fixed-fee licensee that has not yet been disclosed by IDCC, or an existing licensee's fixed-fees got increased, which would be unusual and unique.
(6) "Per-unit royalties of $35.8 million rose 29 percent over $27.7 million reported for third quarter 2009", and increased 13 percent sequentially over the $31.6m per-unit royalties from last quarter.
(7) Sharp broke the 10% revenue threshold in the 3rd quarter for the first time this year. Sharp's quarterly per-unit royalties exceeded $10m ($91.9m x 11%). I can't quite understand how a rather minor wireless player like Sharp can break the revenue threshold, while bigger per-unit licensees like RIM and HTC can't. All that I can figure is that Sharp's royalty rates must be significantly higher than RIM and HTC royalty rates. From the press release:
"Customers that accounted for ten percent or more of the $91.9 million of third quarter 2010 total revenue were Samsung (28 percent), LG Electronics (16 percent), and Sharp (11 percent)."
TheNet re M Partners 2010 earnings estimates you asked:
...."re. MPartners. Ronny, what do you think of MPartners’ estimated numbers, $3.44/sh (the highest among 5 analysts) estimated for 2010 and $3.68/sh estimated for 2011?.....The analyst seemed to think that IDCC will continue to get paid by LG after the current license expired."
What I have a problem with is M Partners long-term share price valuation methods. I think 1% per-unit royalties and 40 cents chipset royalties might be a little too high. Still, I really have no problem with M Partners 2010 estimated EPS of $3.44 per share, which appears reasonable to me. However, I can't comment on their 2011 estimated EPS, because there are too much uncertainties at this particular juncture. Primarily will LG renew for 2011 and at what royalty rate/amount if they do?
Jimlur re new report by M Partners
I've been out of town, and just got back. I was catching up on the older ihub posts and saw the new report by M Partners, and your request that I comment on it. While there is some good stuff in the report, there are some obvious errors also. The two most obvious assumption errors by M Partners are: (1) IDCC gets 1% of the ASP on most of its significant per-unit licenses, and (2) IDCC gets 40 cents per-unit royalty from Infineon on iphone and ipad chipsets.
M Partners assumes that IDCC gets 1% of the ASP on its per-unit licenses. While IDCC might get close to 1% on some of the older per-unit Japanese licensees, such as Sharp perhaps, I don't think they get nearly that on some of the more recent per-unit licensees, such as, RIM and HTC. In its report for example, M Partners assumed that RIM pays 1% per-unit royalty rate on its $300 estimated ASP for 2010. That would make RIM's estimated royalty rate at $3 per handset. However, RIM's actual royalty to IDCC in the second quarter 2010 is probably less than 82 cents per handset, because RIM did not make the 10% of revenue threshold in the second quarter. IDCC's total Revenues were $91.2m in the second quarter x 10% = $9.1m threshold revenue. RIM sold 11.2m smartphones in its fiscal first quarter, which should primarily hit IDCC's second quarter revenues. RIM's royalties were less than $9.1m threshold amount, thus RIM's per-unit royalty is nowhere near the 1% of ASP or $3 per unit and might actually be less than 82 cents per-unit (11.2m smartphones x 82 cents per unit = $9.2m indicated royalty).
M Partners estimates that IDCC receives 40 cents per iphones and ipads from Infineon chipsets to Apple. Apple sold 8.7m iphones in the fourth calendar quarter of 2009, which should primarily hit IDCC's revenues in the 1st quarter of 2010 through Infineon. IDCC total Technology Revenues for the first quarter of 2010 were $2.4m. Assuming that all of this $2.4m technology revenue was from Infineon, then the indicated royalty rate from Infineon appears to be less 28 cents per iphone chipset ($2.4m / 8.7m iphones = 27.5 cents indicated royalty).
Now there is some complication to my above assumptions. First, Rim's fiscal first quarter 2010 ended in May 2010 and its fiscal fourth quarter ended in Feb 2010, in which they sold 10.5m smartphones. Therefore it is somewhat confusing as to exactly what number of handsets got reported to IDCC in its second quarter by RIM. It might have been 11.2m or 10.5m or something in between these two amounts. Next, I used Apple's iphone unit sales in the fourth calendar quarter of 2009. However, we really need to know Infineon's actual unit chipset sales to Apple in the fourth calendar quarter that would be reported to IDCC in the first quarter 2010 by Infineon. This should approximate the 8.7m Apple iphone unit sales, but could be somewhat different due to inventory level changes.
Rox re Reference information on IDCC
I updated that older reference info post with a newer one yesterday as follows:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54809617
NukeJohn re indicated 3rd Quarter per-unit royalties
Your analysis would be correct, if there were no Technology Revenues in the third quarter. However if you assume that the technology revenues will be the same as the second quarter (which is doubtful) and no Past Sales, then you would get a different indicated per-unit royalties for the 3rd quarter. For example:
Estimated Total Revenue 3rd Quarter = $89.5m (midpoint of IDCC's guided range)
- Technology revenues = $6.1m (assume same as 2nd quarter)
- Past sales = 0 (assume)
- Fixed-fee recurring royalties = $48.6m (assume same as 2nd quarter)
= Indicated recurring per-unit royalties 3rd qtr = $34.8m (versus $31.6m actual in 2nd quarter)
Reference information on IDCC as of 6/30/2010
Jimlur requested that I consolidate some of my financial research on IDCC into one post for easy reference.
The following linked post shows IDCC's Revenues through 6/30/2010 by licensee:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54806968
The following linked post shows IDCC's fixed-fee revenues 2009 through 6/30/2010 by quarter and by licensee:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54801956
The following linked post shows the expiration dates in chronological order, and some other financial information, for IDCC's significant licenses:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54803681
The following linked post shows all of IDCC's stock repurchases by year:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47160738
The following linked post recaps some of my observations regarding some positive trends for IDCC since 2008:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=53801960
IDCC’s Licensing Revenues thru 6/30/10 by licensees
2010 1st Quarter:
Total Revenues = $116.2m
Past Sales = $35.7m (Casio Hitachi = $29m, True-Up Audit = $6.7m)
Technology Solutions = $2.4m (primarily Infineon)
Recurring royalty revenues = $78.1m
Fixed-Fee recurring royalty of $48.1m as follows:
Samsung ...$25.7m per quarter
LG .........$14.3m per quarter
Pantech....$3.9m per quarter
Apple......$2.1m per quarter
Lucent...$700,000 per quarter
Unidentified fixed-fee Licensee $1.4m
Per-Unit recurring royalty of $30m as follows:
Casio Hitachi....$2.1m
All Other per-unit licensees......$27.9m (RIM, Sharp, NEC, HTC, Panosonic, Toshiba, Sierra, Cinterion, etc)
Total Revenues 1st Quarter 2010 = $116.2m
2010 2nd Quarter:
Total Revenues = $91.2m
Past Sales = $4.9m (Kyocera renewal for final two quarters of 2009)
Technology Solutions = $6.1m ($3.1m from new licensees Beceem and CapiSemi, remaining $3m primarily Infineon)
Recurring royalty revenues = $80.2m
Fixed-Fee recurring royalty of $48.6m as follows:
Samsung ...$25.7m per quarter
LG .........$14.3m per quarter
Pantech....$3.9m per quarter
Apple......$2.1m per quarter
Lucent...$700,000 per quarter
Unidentified Licensee $1.4m
Unidentified Increase over previous two quarters $ .5m
Per-Unit recurring royalty of $31.6m as follows:
Casio Hitachi....$2.1m
All Other per-unit licensees......$29.5m (RIM, Sharp, NEC, HTC, Panosonic, Toshiba, Sierra, Cinterion, etc)
Total Revenues 2nd Quarter 2010 = $91.2m
2009
Total Revenues = $297.4m
Past Infringement = $3m
Technology Solutions = $9.8m (estimate Infineon = $9.2m and Philips/STE = $.6m)
Recurring Royalty Revenues = $284.6M
Samsung 2G/3G fixed $98.5m from 1/14/09 -12/31/09 ($25.7m per quarter)
LG fixed 2G/3G = $57.0m ($14.25m per quarter) [License expires December 2010]
Sharp 2G/3G per unit = $28.8m
Kyocera fixed $5m ($2.5m per quarter). [License expired June 2009].
Apple fixed $8.6m ($2.14m per quarter)
Pantech fixed 2G/3G/4G = $4.4m from 9/21/09 – 12/31/09 (approximately $4m per quarter)
Lucent fixed $2.8m ($700,000 per quarter). [License expires October 2010].
Canadian Licensees (RIMM and Sierra) = $27.4m
Taiwan Licensees (HTC, Quanta, Arima, Inventec, Asustek) = $15.4m
Other Japanese Licensees (Includes NEC, Panasonic, Toshiba; Excludes Sharp and Kyocera) = $39.5m
Less past infringement ($3.0m) probably included in Canadian, Taiwan, or other Japanese licensees totals above to keep from double counting
All other licensees = $200,000
Total 2009 = $297.4m
2008:
Total Revenues $228.5m
Sanyo remainder (discontinued handset manufacturing): $7.3m [stopped at end of 2008 with Sanyo exiting handset business]
Other non-recurring revenues $2.1m
Technology solutions = $12.0m (primarily Infineon estimated at $6.1m, Spreadtrum estimated at $3.4m, Philips STE estimated at $1.6m, and Other = $0.9m )
Recurring Royalty Revenues = $207.1m
LG fixed 2G/3G = $57.0m ($14.25m per quarter).
Sharp $36.7m ($0.5m PDC; $36.2m GSM/3G)
NEC 3G $26.6m
Kyocera fixed $10.0m ($2.5m per quarter). [License expires June 2009].
Apple fixed $8.6m ($2.14m per quarter).
Sanyo fixed PDC/CDMA2000 $4.4m [stopped at end of 2008 with Sanyo exiting handset business]
Lucent fixed $2.8m ($700,000 per quarter)
Canadian Licensees (RIMM and Sierra) = $19.0m
Taiwan Licensees (HTC, Quanta, Arima, Inventec, Asustek) = $14.4m
Other Japanese Licensees (Includes Panasonic and Toshiba; Excludes Sharp, NEC, Sanyo, and Kyocera) = $28.8m
Less other nonrecurring revenue ($2.1m) probably included in Canadian, Taiwan, or other Japanese licensees totals above to keep from double counting
All other licensees $900,000
Total 2008 = $228.5m
2007:
Total Revenues $234.2m
Sony Ericy 2G true-up audit (1st qtr) $9.3m
Other non-recurring revenues $5.4m (Estimate $4.4m an additional Sony Ericy true-up and $1.0m Unidentified)
Technology solutions = $3.4m (Philips NXP estimated at $2.1m and Infineon at $1.3m)
Recurring Royalty Revenues = $216.1m
LG fixed 2G/3G = $57.0m ($14.25m per quarter)
Sharp $44.5m ($1.2m PDC and $43.3m GSM/3G)
NEC $32.3m
Sony Ericy recurring $8.8m (for one quarter in 2007)
Kyocera fixed $10.0m
Sanyo fixed PDC/CDMA2000 $4.4m
Apple fixed $4.3m (for 2 quarters at $2.14m per quarter)
Lucent fixed $2.8m
Canadian Licensees (RIMM and Sierra) = $14.6m
Taiwan Licensees (HTC, Quanta, Arima, Inventec, Asustek) = $11.3m
Other Japanese Licensees (Includes Panasonic and Toshiba; Excludes Sharp, NEC, Sanyo, and Kyocera) = $26.2m
Less other nonidentified nonrecurring revenue ($1.0m) probably included in Canadian, Taiwan, or other Japanese licensees totals above to keep from double counting
All other licensees $900,000
Total 2007 = $234.2m
2006:
Total Revenues $480.5m
Nokia 2G settlement $253.0m
Panosonic (Matsushita) 3G true-up $12.0m
Other non-recurring revenues $2.4m
General Dynamics $1.8m
Other technology solutions = $5.1m (primarily Philips NXP and Infineon)
Recurring Royalty Revenues = $206.1m
LG fixed 2G/3G = $54.7m (not quite a full year in 2006)
NEC $40.0m ($2m remaining fixed 2G settlement and $38.0m 3G)
Sharp $35.8m ($4.7m PDC and $31.1m GSM/3G)
Sony Ericy recurring $16.9m
Ericy fixed recurring $6.0m
Kyocera fixed $10.0m
Sanyo fixed PDC/CDMA2000 $4.4m
Lucent fixed $2.8m (at $700,000 per quarter)
Others Recurring Royalty $35.6m (includes HTC, RIM 2G, Sierra, Sanyo for GSM/WCDMA, Toshiba, Panasonic 3G, Option, Danger, Quanta, Arima, Inventec, etc)
Total 2006 = $480.5m
2005:
Total Revenues $163.1m
Kyocera: past years true-up on new license $10.2m
General Dynamics $16.2m
Other technology solutions = $2.8m (primarily Philips NXP)
Recurring Royalty Revenues = $133.9m
NEC $48.5m ($13m fixed 2G settlement and $35.5m 3G)
Sharp $36.3m ($9.4m PDC and $26.9m GSM/3G)
Sony Ericy recurring $15.7m
Ericy fixed recurring $6.0m
Kyocera fixed $5.0m (two quarters in 2005 at $2.5m per quarter)
Sanyo fixed PDC/CDMA2000 $4.4m
Others Recurring Royalty $18.0m (includes HTC, RIM 2G, Sierra, Sanyo for GSM/WCDMA, Toshiba, Option, Danger, Lucent, Quanta, Arima, etc)
Total 2005 = $163.1m
2004:
Total Revenues $103.7m (Note only includes 3 Quarters of recurring per unit royalties)
Past years true-up on new licensees $1.4m
Licensee discontinued standards $0.4m
General Dynamics $0.1m
Recurring Royalty Revenues = $101.8m
NEC recurring $44.3m ($13m fixed 2G settlement and $31.3m 3G)
Sharp recurring $25.1m ($12.1m PDC and $13.0m GSM/3G)
Sony Ericy recurring $12.7m
Ericy fixed recurring $6.0m
Sanyo fixed PDC/CDMA2000 $3.3m ($1.1m per quarter x 3 quarters in 2004)
Others Recurring Royalty $10.4m (includes HTC, RIM 2G, Sierra, Sanyo for GSM/WCDMA, Toshiba 2G/3G, Option, Danger, etc)
Total 2004 = $103.7m
2003:
Total Revenues and Other Income $125.2m
Sony Ericy past years’ settlement $20.3m
Ericy past years’ settlement $10.6m ($14m - $3.4m expected insurance reimbursement )
Other past year true-ups $0.3m
Nokia engineering services $1.0m
Recurring Royalty Revenues = $93.0m
NEC recurring $33.4m ($13m fixed 2G settlement and $20.4m 3G)
Sharp recurring $28.5m ($19.5m PDC and $9.0m GSM/3G)
Sony Ericy recurring $13.0m
Ericy fixed recurring $6.0m (at $1.5m per quarter)
Others Recurring Royalty $12.1m (includes HTC, RIM 2G, Sanyo 2G, Toshiba 2G, etc)
Total 2003 = $125.2m
2002:
Total Revenues $87.9m
Denso discontinued standards $9.7m
Kyocera discontinued standards $6.9m
NEC pre-2002 infrastructure $7.8m
Nokia engineering services $4.5m
Recurring Royalty Revenues = $59.0m
NEC 2002 recurring $22.5m ($12.4m 2G settlement and $10.1m 3G recurring)
Sharp recurring $26.2m ($23.5m PDC and $2.7m GSM/3G)
Samsung arbitration $0.5m
Others Recurring Royalty $9.8m
Total 2002 = $87.9m
2001:
Nokia engineering services = $21.8m
Sharp Recurring Royalty = $16m
Others Recurring Royalty = $14.8m
Total 2001 = $52.6m
2000:
Nokia engineering services = $17.2m
Sharp Recurring Royalty = $18m
Others Recurring Royalty = $16.2m (Note: accounting change in 2000 that converted previous nonrefundable upfront advances into recurring royalty streams based upon earned amounts each accounting period)
Total 2000 = $51.4m
1999:
Nokia Paid-up P1 royalty = $31.5m
Nokia engineering services =$14m
Robert Bosch = $7.9m
Japan Radio and Shintom = $3.4m
Others Recurring Royalty = $9.5m (mostly Sharp)
Total 1999 = $66.3m
1998:
Kyocera = $27m
Denso = $20m
Toshiba = $15m
Sharp = $6m
Alcatel = $5m
Siemens = $3m
Sanyo and Hitachi/Kokysai = $15m (can not break out this total between the licensees)
Others Recurring Royalty = $1m
Total 1998 = $92m
1997:
Samsung = $3m
Siemens = $1.5m
Others Recurring Royalty = $1.5m
Total 1997 = $6m
1996:
Samsung = $23m in 1996 from a total contract of $35m
Siemens = $ 4.8m
One unspecified licensee = $0.9m
Total 1996 = $28.7m
1995:
NEC = $27m
Mitsubishi = $20m
Siemens = $13.6m in 1995 from a total $20m contract
Hitachi/Kokysai = $3.5m
Sanyo = $2.8m
PCSI = $0.8m
Total 1995 = $67.7m
1994:
Matsushita = $20m
Qualcomm = $5.5m
AT&T = $2.4m
Others = $0.6m
Total 1994 = $28.5m
1993 = 0
1992 = $3m (possibly GM Hughes)
1991 = 0
Expiration dates of significant licenses listed in chronological order as follows (revised):
(1) Kyocera: Expired June 2009. $2.5m fixed per quarter for 5 years for CDMA2000. No indication of any paid-up provisions. Virtually certain that Kyocera renewed in the second quarter of 2010 as a per-unit license rather than fixed-fee.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=52841500&txt2find=kyocera
(2) Casio Hitachi (CHMC): Expired June 2010 as a separate entity licensee. Signed in the first quarter of 2010 and expired June 30, 2010 into a joint venture with NEC. IDCC recognized $33.2m revenues ($29m past sales prior to 2010 and $4.2m for 2010) from CHMC during first half of 2010. In future quarters, CHMC's revenues will be combined with NEC's revenues and reported as a joint venture.
(3) Lucent: Expires October 2010. $700,000 fixed per quarter for 5 years for CDMA2000. No indication of paid-up provisions, so it will need to be renewed when license expires.
(4) LG: Expires at end of 2010. $14.25m fixed per quarter for 5 years for 2G/3G. The cash was received in 3 annual installments of $95m each, ending in 2008. Single-mode 2G will be paid-up when license expires, but 3G will need to be renewed. IDCC is at work already tring to renew the 3G/4G LG license per the latest 10K as follows:
"Expiration of the LG License
In December 2010, we will complete our amortization of $285.0 million of royalty revenue associated with our patent license agreement with LG. LG contributed approximately $57.5 million or 19% of our revenue in 2009. This license covers the sale of (i) terminal units designed to operate in accordance with 2G and 2.5G TDMA-based and 3G standards, and (ii) infrastructure designed to operate in accordance with cdma2000 technology and its extensions up to a limited threshold amount. Under the terms of the agreement, LG paid $285.0 million in three equal installments from 2006 through 2008. Upon expiration of the agreement, LG will receive a paid-up license to sell single-mode GSM/GPRS/EDGE terminal units under the patents included under the license, and become unlicensed as to all other products covered under the agreement.
We continue to place substantial focus on renewing agreements that have or will expire and expanding our patent licensee base, both with the top tier handset manufacturers and other market participants."
(5) Sharp: 2G PDC/PHS expires in April 2011, but virtually no current PDC revenues from this license. Per-unit license for 2G GSM and 3G standards have no fixed expiration date (license expires when last applicable patent expires).
(6) Samsung: Expires at end of 2012. $25.7m fixed per quarter for 4 years for 2G and 3G. 2G will be paid-up in 2010, but 3G will need to be renewed when license expires at the end of 2012. Samsung is paying a total of $400m in four six-month installments of $100m each, with the last installment payment due in July 2010.
(7) RIM: Expires at end of 2012. Nothing indicated about any paid-up provisions. Therefore, I assume that 2G and 3G will need to be renewed when the per-unit license expires, although 2G should be about gone by that point.
(8) Cinterion: a new license signed in 2009 that will expire at the end of 2012. From the latest 10K as follows:
"In third quarter 2009, we entered into a non-exclusive, non-transferable, worldwide, royalty-bearing, convenience-based, patent license agreement with Cinterion Wireless Modules GmbH covering the sale of Machine-to-Machine (“M2M”) modules and PC Cards designed to operate in accordance with 2G and 3G Standards for the period January 1, 2009 through the end of 2012."
(9) Apple: Expires June 2014. From all indications thus far, $2.14m fixed per quarter for 7 years for 2G and 3G. No indication of any paid-up provisions.
(10) NEC: per-unit license for 3G standards due to expire at the end of 2015. 2G has already expired. After June 30, 2010 will be combined into a joint venture with Casio Hitachi (CHMC).
(11) Pantech: Expires at the end of 2016. New fixed-fee licensee signed 9/21/09 that covers about everything: 2G, 3G, LTE, and Wi-Max/Bro. Either $111.5m or $121.5m will be earned over a 29 quarter period = $3.84m to $4.2m per quarter. Also there could be additional revenues if sales exceed a certain threshold amount. See my following linked post for additional details re the Pantech license:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47159046
(12) Panasonic (Matsushita): No expiration given or indicated for the per-unit 3G license. 2G is already paid-up.
(13) Toshiba: Per-unit license for 2G GSM and 3G have no fixed expiration date (license expires when last applicable patent expires). Paid-up for 2G PDC/PHS.
(14) HTC: Per-unit license for 2G and 3G with no given or indicated expiration date.
(15) Sierra Wireless: Per-unit license 2G and 3G with no given or indicated expiration date.
IDCC's quarterly fixed-fee royalties 2009 - 6/30/2010 by Quarter and Licensee
The First Quarter 2009 Total fixed-fee of $42.1m is composed of the following licensees:
Samsung ..$21.4m partial quarter
LG .........$14.3m per quarter
Kyocera...$2.5m per quarter
Apple......$2.1m per quarter
Lucent...$700,000 per quarter
Unidentified licensee $1.1m
Total Fixed Fee 1st $42.1m
The unidentified licensee is due to an unidentified per-unit licensee who switched to combination fixed–fee and per-unit license during the third quarter 2008. The unidentified amount was $1.1m in the first quarter, but $1.4m for the remaining quarters in 2009.
The Second Quarter 2009 Total fixed-fee of $46.7m is composed of the following licensees:
Samsung ..$25.7m per quarter
LG .........$14.3m per quarter
Kyocera...$2.5m per quarter
Apple......$2.1m per quarter
Lucent...$700,000 per quarter
Unidentified Licensee $1.4m
Total Fixed Fee 2nd $46.7m
The Third Quarter 2009 total fixed-fee of $44.8m is composed of the following licensees:
Samsung ..$25.7m per quarter
LG .........$14.3m per quarter
Kyocera......$0
Apple......$2.1m per quarter
Lucent...$700,000 per quarter
Pantech...$600,000 partial quarter
Unidentified Licensee $1.4m
Total Fixed Fee 3rd $44.8m
IDCC's total fixed-fee royalties from the third quarter 10Q decreased to $44.8m from second quarter's $46.7m. Kyocera's fixed-fee license expired on June 30, 2009 at the end of the second quarter. Therefore, the almost $2m decrease in fixed-fee is due to the drop-off of Kyocera's $2.5m per quarter, and the addition of an estimated 9 days of Pantech's new fixed-fee license signed on Sept. 21. Pantech's fixed royalty revenue for a full quarter will be almost $4m as Scott stated in the CC, or probably $3.86m to be a little more precise. (The total fixed amount assigned to the contract was $112m divided by 29 full Quarters = $3.86m per full quarter).
The Fourth Quarter 2009 total fixed-fee of $48.1m is composed of the following licensees:
Samsung ...$25.7m per quarter
LG .........$14.3m per quarter
Kyocera......0
Apple......$2.1m per quarter
Pantech....$3.9m for a full quarter
Lucent...$700,000 per quarter
Unidentified Licensee $1.4m
Total Fixed Fee 4th $48.1m
Grand Total Fixed Fees for 2009 = $181.7m
The First Quarter 2010 total fixed-fee of $48.1m is composed of the following licensees:
Samsung ...$25.7m per quarter
LG .........$14.3m per quarter
Kyocera......0
Apple......$2.1m per quarter
Pantech....$3.9m for a full quarter
Lucent...$700,000 per quarter
Unidentified Licensee $1.4m
Total Fixed Fee 1st 2010 $48.1m
The Second Quarter 2010 total fixed-fee of $48.6m is composed of the following licensees:
Samsung ...$25.7m per quarter
LG .........$14.3m per quarter
Kyocera......0 (renewed in second quarter, but as a per-unit license)
Apple......$2.1m per quarter
Pantech....$3.9m for a full quarter
Lucent...$700,000 per quarter
Unidentified Licensee $1.4m
Unidentified Increase over previous two quarters $ .5m
Total Fixed Fee 2nd 2010 $48.6m
Jimlur re sticky notes
One of the sticky notes is a rather old one of mine on licensing revenue, and another is a more recent one of mine on positive trends. As I get the time, I will update a couple of my financial reference posts. When I am through updating, I will consolidate them into one "Reference Information on IDCC" post, like I did previously in March. You might consider using the upcoming consolidated reference post as one sticky, and delete my other two current stickies.
Olddog re foreign taxes as deductions
Well I believe that particular 10K reference explains why IDCC chose deductions for the foreign taxes from 1999-2005, rather than credits. That's a much better explanation than my initial unposted thought that Rich Fagan, IDCC's CFO at that particular time, was incompetent. I still think that IDCC's old top management regime of Goldberg, Tilden, Fagan, and Campagna lacked an awful lot to be desired. I am much more confident in IDCC's current top management team.
Gamco re foreign taxes you said:
...."If I may ask a tax question about IDCC and the "foreign tax credit" available. Take Samsung for example, when they pay us a $100MM royalty installment, I think we only receive $85 MM in cash with the remaining $15 MM withheld as foreign taxes. But isn't that same $15 MM available to IDCC as a tax credit (not deduction) on our federal corporate tax return?"
Yes IDCC can you the foreign taxes that they pay foreign countries as either a tax credit against its US tax obligation OR as a tax deduction on the US tax return, whichever is the greater tax benefit. Almost always the greater tax benefit is obtained by using the foreign taxes as a credit, rather than as a deduction. However, for some strange reason IDCC chose tax deductions, rather than credits, for foreign taxes paid in the years 1999-2005. IDCC has amended those prior tax returns to change the election over to a credit for foreign income tax. Since 2006, IDCC has elected to use the foreign taxes as tax credits, rather than deductions. From the latest 10K as follows:
"During fourth quarter 2009, we completed a study to assess the Company’s ability to utilize foreign tax credit carryovers into the tax year 2006. As a result of the study, we are currently planning to amend our United States federal income tax returns for the periods 1999 — 2005 to reclaim the foreign tax payments we made during those periods from deductions to foreign tax credits. We have established a basis to support amending the returns and estimate that the maximum incremental benefit will be approximately $19.1 million. We recorded a net benefit of $16.4 million after establishing a $2.7 million reserve for related tax contingencies. The process to amend these returns is complicated involving tax treaty proceedings including both U.S. and foreign tax jurisdictions. It is possible that at the conclusion of this process the $16.4 million benefit we recognized may not be realized in full or in part or that we may realize the maximum benefit of $19.1 million.
Between 2006 and 2009, we paid approximately $101.1 million in foreign taxes for which we have claimed foreign tax credits against our U.S. tax obligations. It is possible that as a result of tax treaty procedures, the U.S. government may reach an agreement with the related foreign governments that will result in a partial refund of foreign taxes paid with a related reduction in our foreign tax credits. Due to both foreign currency fluctuations and differences in the interest rate charged by the U.S. government compared to the interest rates, if any, used by the foreign governments, any such agreement could result in interest expense and/or foreign currency gain or loss."
Why is IDCC just sitting on all that Cash?
I suppose the best answer to that question came from Merritt's prepared comments from the 4th quarter earnings conference call as follows:
...."Lastly, with regard to M&A, we successfully concluded a transaction with Attila Technologies last year taking both a license under their bandwidth aggregation technology and an equity position in the company. We also concluded one patent acquisition deal. For 2010, we want to continue to find opportunities for targeted investments in small innovative companies to drive our technology road map faster. We will also continue to actively seek out high quality patent portfolios. We believe these investments in these spaces have the ability to drive significant long term value for our shareholders and represent the best current use of our cash."
Evidently IDCC's management has a definitive plan for its excess cash, and are just waiting for the appropriate times to acquire additional targeted wireless IPR, either through smaller innovative companies or larger company's quality patents. From the latest CC as follows:
"Bill Nasgovitz - Heartland Funds
Okay. Well, again, speaking as a significant long-term loyal shareholder, we'd love to see the buyback reactivated even at $28 earning three bucks. Gee, just simple, that's over 10% on our money. Why not? Why not do some buyback, especially when you paid over $30 a share a year or so ago?
Bill Merritt
It’s a good question I could say the board regularly discusses that issue. And its not a question of, we believe we can create value to a stock buybacks without a question premium value it’s a question of whether there's other opportunity that can create more value. And so I appreciate your comment and I tell you that this is a topic that we roughly went out to figure pretty regular basis here. And let me mention before we had mentioned before we're not we have not been and we don’t expect to be people that just hoard cash. If this happens to be there is a couple of opportunities sitting out there that could be very significantly value creators and we wanted to make sure that we have sufficient liquid assets to be able to participate effectively in those processes.
Bill Nasgovitz - Heartland Funds
And those potential acquisitions would be immediately accretive to earnings for InterDigital shareholders?
Bill Merritt
As we talked about on the last call. I think the way to look at them is if you're as a example the Nortel patent portfolio, I don’t believe today is producing significant amounts of revenue. So there really is a future opportunity but that future opportunity can be enormous.
I think Scott mentioned on last call if you just look at it tenth of a percent royalty increase as a result of the added portfolio on a net present value basis it’s worth $900 million. So that doesn’t immediately improve your earnings in the next quarter but it could substantially increase your share holder value over time. And set out the table that that’s a question the board asked so they paid balance all this year so you are asking all the right questions."
Fish re IDCC's puzzling stock price you said:
....."rmarchma, GREAT ANALYSIS, however, when looking at the most meaningful item, namely the STOCK PRICE, IDC is NO BETTER OFF TODAY than their price was at the end of 2008....IT'S A SHAME that the price is where it is, considering ALL of the positives as you mentioned.......Which leaves one with the question of W H Y ! ! ! Maybe its because analysts cant figure out InterDigital. They can see the past and the present but won't hedge their bets on the future except for what is known and that is LG renewal questionable and KOKIA situation questionable."
IDCC's stock price has actually fallen 10% during my referenced time period from $27.50 per share at Dec 31, 2008 to $24.69 per share at June 30, 2010. BTW the S&P 500 Stock Index actually increased 14% during the same time period from 903 at 12/31/08 to 1031 at 6/30/10. With all the positives that IDCC has going for it during that same time period, I can't for the life of me figure out IDCC's decreased stock price. It's perhaps, as you say, due to the adverse ITC Nokia decision and LG renewal fears. Both of these appear to me to be somewhat overdone though. IDCC's management keeps stating that it's not a matter of if, but when, as to a Nokia licensing. I would think that the LG renewal fears should be significantly mitigated by the Kyocera renewal and IDCC's next generation LTE IPR.
IDCC: a few positives to reflect upon since 2008
1. Tremendous sequential growth in Revenues, Net Income, EPS, and Cash
Using the 4th quarter of 2008 as a reference base and going forward six subsequent quarters through the 2nd quarter of 2010:
(a) Revenues increased from $58.7m to $91.2m, for an increase of $32.5m or 55%.
(b) Net Income increased from $3.8m to $35m, for an increase of $31.2m or 821%. Even using pro-forma Net Income of $7.5m in the 4th quarter of 2008, rather than actual Net Income, the increase was $27.5m or 367%.
(c) Diluted EPS increased from 9 cents to 78 cents, for an increase of 69 cents or 767%. Even using pro-forma EPS of 17 cents in the 4th quarter of 2008, rather than the actual EPS, the increase was 61 cents or 359%.
(d) IDCC’s Cash balance increased form $141.6m to at the end of 2008 to $485.8m at the end of the 2nd quarter 2010, an increase of $344.2m or 243%. (This doesn’t even include the last $100m installment from Samsung that was received at the beginning of the third quarter).
Being an accountant, I tend to place greater emphasis upon the numbers than anything else. And IDCC’s numbers have been fantastic since 2008.
2. Increased licensing activities since 2008
(a) In 2009, IDCC signed new licenses with (1) Samsung for $400m total, (2) Pantech for approximately $4m per quarter through 2016 that specificly included LTE/3.5G and LTE-Advanced /4G for the first time, and (3) Cinterion Wireless for M2M modules and PC cards.
(b) In the first quarter of 2010, IDCC signed a new license with (1) Casio Hitachi (CHMC), which generated about $33m in revenues during the first two quarters of 2010, with the majority being associated with past sales. IDCC also signed licenses with two chip manufacturers, (2) CapiSemi of China and (3) Beceem, which generated $3.1m of new revenues in the second quarter. They also signed its second M2M license with (4) Enfora in the first quarter of 2010, which expanded IDCC’s licensed M2M module market to 50%.
(c) During 2010, IDCC expanded its existing license with Inventec to include (1) Inventec’s Chinese subsidiary. Finally in 2010, IDCC signed a renewal license with (2) Kyocera, which had lapsed at the end of the second quarter 2009.
3. Surge in LTE 3.5G and 4G IPR
(a) IDCC is building a significant IPR position in the next generation’s cellular standards. IDCC has even been recognized by outside agencies as having one of the most extensive and important patent portfolios pertaining to 3.5G LTE and 4G LTE-Advanced technologies in the wireless industry. This significant IPR position in next generation cellular should greatly help IDCC in its renewal licenses with the large OEM’s, such as LG and Samsung, and with the unlicensed Tier 1 manufacturers (Nokia, Sony-Ericy, and Motorola).
(b) From the latest 10K re IDCC's LTE IPR:
"Some of our LTE inventions include or relate to:
• Multi-Input Multi-Output (MIMO) technologies for reducing interference and increasing data rates;
• OFDM/OFDMA/SC-FDMA;
• Power control;
• Hybrid-ARQ for fast error correction;
• Discontinuous reception for improved battery life;
• Control channel structures for efficient signaling;
• Advanced resource scheduling/allocation (bandwidth on-demand);
• Security;
• Enhanced Home Node-B (femto cells);
• Relay communications for improved cell edge performance;
• LTE receiver implementations;
• Carrier aggregation for LTE-Advanced; and
• Coordinated Multi-Point Communications (CoMP) for LTE-Advanced."
10Q essentially verifies that renewed licensee was Kyocera, without specifying the exact name of the licensee. From the 10Q as follows:
......"The increase in past sales revenue was attributable to the renewal of a patent license agreement. The past sales period covered the six months between the expiration of the previous patent license agreement and the beginning of the licensee’s first quarter 2010 reporting period.
The increase in fixed fee amortized royalty revenue was driven by the September 2009 patent license agreement with Pantech. This increase was partially offset by the expiration of a fixed fee license agreement in second half 2009, which, as noted above, was renewed in second quarter 2010 as a per-unit agreement."
I was confident that I had accurately predicted the above scenario after listening to the CC, but am now positive from the 10Q that the licensee has to be Kyocera. From a repost of mine BEFORE the CC as follows:
Posted by: rmarchma Date: Thursday, July 29, 2010 6:39:41 AM
In reply to: None Post # of 293318
Could Kyocera be the licensee who renewed? From the earnings press release as follows:
...."Revenue of $91.2 million (which includes $4.9 million related to past sales)...... Patent licensing royalties of $85.1 million increased $12.4 million, or 17 percent, over $72.7 million in second quarter 2009 driven by new agreements signed subsequent to second quarter 2009, the renewal of a patent license agreement in second quarter 2010, which contributed to both per-unit royalties and past sales, and higher sales by nearly all of our existing per-unit licensees.
We are fairly certain that Kyocera's license expired at the end of June 2009. Kyocera had a fixed-fee license of $10m per year or $2.5m per quarter. If it were Kyocera who renewed its expired license in the second quarter of 2010, then they would owe past royalties for at least the last two quarters of 2009, which corresponds nicely with the $4.9m of recorded past sales. If Kyocera renewed in the second quarter 2010, but with a per-unit license this time around, then they would owe current per-unit royalty in the second quarter for their sales in the first quarter of 2010, just like all the other per-unit licensees. Therefore, they could have contributed to "both per-unit royalties and past sales", if it was Kyocera who renewed.
BTW I know of no other patent license agreement that was set to expire in the second quarter of 2010 or the previous two quarters. The following linked post shows the expiration dates in chronological order, and some other financial information, for IDCC's significant licenses:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47189390
gejebr3 re whether Kyocera renewal is a "good thing"
I certainly think so. From an earlier post this morning as follows:
Posted by: rmarchma Date: Thursday, July 29, 2010 7:37:42 AM
In reply to: olddog967 who wrote msg# 293015 Post # of 293103
Olddog re possible Kyocera renewal
Thanks for the additional comment about license effective dates. If it is Kyocera who renewed, and I sure hope it is, then this would be very important information to disclose in the CC. If IDCC can get Kyocera to renew an expired license, then that should help take away some of the apprehension about LG's license renewal set to expire at the end of 2010. I think some of the analysts and investors were fearing that the nonrenewal of the Kyocera license might have been caused by the adverse Nokia ITC decision, and that this might set a bad precedent with other important licenses coming up for renewal. A renewed Kyocera license should certainly help pop the renewal fear balloon.
GAB re no 8-K on the Kyocera renewal
At the very end of the CC, Tom Carpenter tried to get Merritt to confirm that the renewal licensee was the one that expired on June 30, 2009, without mentioning Kyocera's name specificly. While Merritt wouldn't directly say that it was Kyocera, it was fairly evident from what he was able to say that it was Kyocera. I think they did all they could during the CC to drop hints that it was Kyocera, but without saying it directly.
As to why it wasn't disclosed in an 8-K, one of the last things that Merritt said during this exchange with Carpenter was that it was good that they had progressed to the point where they didn't consider this renewal to be financially material. Therefore, I think that IDCC's dividing line on financial materiality must be at least 10% of Revenues, which is the separate disclosure requirement threshold of the SEC. When I was an auditor with what was one of the "Big 8" CPA firms many years ago, materiality was basically a judgment call but our guiding rule of thumb was: anything above 5% was definitely material, anything between 2% to 5% might be material, and anything under 2% was probably immaterial. Materiality is still basically a judgment call, and therefore can vary somewhat with each company.
The license renewal has to be with Kyocera
After listening to CC, the license renewal in the second quarter can be none other than Kyocera. Theirs is the only license that has expired recently and had been expired for a least six months before being renewed. Merritt made it clear that it was more important to get the license renewed on favorable terms rather than getting the license renewed before its expiration date. The revenue from this particular licensee, ie Kyocera, included at least six months of past sales as well as a full quarter of per-unit royalties. As Olddog opined in an earlier post the effective date of the license renewal was probably stated as Jan. 1, 2010, although it was actually renewed/signed in the second quarter.
IDoCare re licensee who renewed
IDCC did not indicate the name of the licensee who renewed during the second quarter in the earnings press release itself. However, I'm hoping that they will be able to identify this licensee in the CC, especially if one of the analysts were to specificly ask. Sometimes IDCC is precluded from disclosing specific licensee information due to contract confidentiality. However, materiality always trumps contract confidentiality. I think that $4.9m for past sales + some undisclosed amount of current per-unit royalty from this particular licensee is financially material as it represents over 5% of current quarterly revenues. Plus if it is a renewal from an expired license, it makes it even more material information due to possible licensing implications of other licenses coming up for renewal.
Olddog re possible Kyocera renewal
Thanks for the additional comment about license effective dates. If it is Kyocera who renewed, and I sure hope it is, then this would be very important information to disclose in the CC. If IDCC can get Kyocera to renew an expired license, then that should help take away some of the apprehension about LG's license renewal set to expire at the end of 2010. I think some of the analysts and investors were fearing that the nonrenewal of the Kyocera license might have been caused by the adverse Nokia ITC decision, and that this might set a bad precedent with other important licenses coming up for renewal. A renewed Kyocera license should certainly help pop the renewal fear balloon.
Olddog re cash balance and foreign withholding tax
Thanks. I forgot about the 15% Korean foreign source withholding tax. Therefore, IDCC received $85m net in cash from Samsung in July, rather than the $100m gross installment payment. That would still give IDCC an estimated current cash balance of about $570.5m ($485.5m at June 30 + $85m net cash receipt from Samsung in July) or right at $13 cash per share ($570.5m / 44m outstanding shares).
Could Kyocera be the licensee who renewed? From the earnings press release as follows:
...."Revenue of $91.2 million (which includes $4.9 million related to past sales)...... Patent licensing royalties of $85.1 million increased $12.4 million, or 17 percent, over $72.7 million in second quarter 2009 driven by new agreements signed subsequent to second quarter 2009, the renewal of a patent license agreement in second quarter 2010, which contributed to both per-unit royalties and past sales, and higher sales by nearly all of our existing per-unit licensees.
We are fairly certain that Kyocera's license expired at the end of June 2009. Kyocera had a fixed-fee license of $10m per year or $2.5m per quarter. If it were Kyocera who renewed its expired license in the second quarter of 2010, then they would owe past royalties for at least the last two quarters of 2009, which corresponds nicely with the $4.9m of recorded past sales. If Kyocera renewed in the second quarter 2010, but with a per-unit license this time around, then they would owe current per-unit royalty in the second quarter for their sales in the first quarter of 2010, just like all the other per-unit licensees. Therefore, they could have contributed to "both per-unit royalties and past sales", if it was Kyocera who renewed.
BTW I know of no other patent license agreement that was set to expire in the second quarter of 2010 or the previous two quarters. The following linked post shows the expiration dates in chronological order, and some other financial information, for IDCC's significant licenses:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47189390
WOW blowout earnings and a huge cash balance to boot
Fantastic quarter by IDCC. Sure didn't see this real nice surprise coming. Glad that I am no longer trying to project IDCC's quarterly earnings as I would have really missed this quarter. From the press release as follows:
"Highlights for second quarter 2010:
Net income of $35.0 million, or $0.78 per diluted share, a 32 percent increase over second quarter 2009;
Revenue of $91.2 million (which includes $4.9 million related to past sales), a 22 percent increase over second quarter 2009; and
Ending cash and short-term investments totaling $485.8 million."
BTW the above cash balance of $485.8m as of June 30, 2010 does not even include the last $100m installment payment from Samsung that was received in July. From the press release:
"Finally, I am pleased to note that subsequent to the close of the second quarter, we received a scheduled $100 million payment from Samsung."
Therefore, IDCC's current CASH per share is now up to about $13.31 ($585.8m / 44m outstanding shares), which is virtually one half of IDCC's closing price of $26.95 per share. Just unbelievable.
David you said:
...."I should have known better then to question you on the facts. LOL ....Thanks for all the information....Are you a shareholder again?"
I'm not saying that I have the "facts", but I try my best to get to them. However, the true facts regarding IDCC are extremely elusive and nebulous. Therefore, I certainly don't mind you or anyone else questioning or seeking additional explanation for anything that I post. As to your last question, perhaps you missed the following posts:
Posted by: rmarchma Date: Wednesday, October 28, 2009 5:25:15 PM
In reply to: JimLur who wrote msg# 274978 Post # of 291942
Jimlur I had a good feeling about IDCC and bought back in today, both long shares and call options. Third Quarter Earnings are much better than I even anticipated. Glad to be back as fellow investor, rather than just an interested spectator. Hopefully, I've brought us some good luck.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=42993409
Posted by: rmarchma Date: Wednesday, November 11, 2009 6:57:20 PM
In reply to: JimLur who wrote msg# 277218 Post # of 292806
Jim thanks. Feels good to finally be back into IDCC with some skin in the game. My IDCC investment has been very good to me in the past, and will hopefully be very good to me in the future. Best of luck to all fellow longs! BTW I still do not like Roath and Harry being on IDCC's BoD: just trying to be honest about my true feelings.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=43478863&txt2find=jim
dndodd re IDCC's 2G and 3G royalty rates
Before the Ericy settlement, Rip Tilden told me directly in a phone conversation that IDCC's 2G royalty rates ranged between 1% to 3%. The wholesale price of a 2G handset at that time was at least $200. Therefore, a minimum of 1% would represent $2 per 2G handset, and a maximum of 3% would yield $6 per 2G handset. I calculated and posted that Sharp's 2G per unit royalty rate was over $4 per handset. Rip also told me that he expected the 3G royalty rates to be less than the 2G rates, because significantly more companies were furnishing 3G IPR compared to 2G IPR.
Now Ericy's 2G settlement royalty rate was well under the 1% to 3% range. I calculated that they were paying less than $1 per 2G handset or about one-half of 1%. Nokia eventually got a significantly better 2G settlement royalty rate than Ericy. You are correct that Ericy and Nokia really skewed IDCC's overall 2G royalty rates downward.
The Japanese licensees were the first to license 3G from IDCC. The wholesale prices of 3G handsets were greater than 2G, probably at least $400 at first. I remember calculating that Sharp's 3G royalty rate at one point was between $2.50 to $2.75 per unit, or about 6 to 7 tenths of 1%. I think the other early Japanese 3G per-unit licensees, like NEC and Panasonic, were paying over $2 per 3G handset as well, but I doubt that any 3G licensee was paying over 1% of the average 3G wholesale price.
However as time went on, IDCC's 3G royalty rates were reduced further. A lot of the reduction in rates had to do with fixed-fee licenses. LG was the first 3G licensee that I am fairly sure was paying under $1 per 3G handset. I'm confident that Samsung and Apple pay significantly less than $1 per 3G handset. RIMM pays less than $1 per handset. If the average wholesale price of 3G smartphones is around $500 to $600, then a less than $1 per unit royalty on certain 3G smartphones is less than a 2 tenths of 1% royalty rate. I'm fairly certain, at least in my own mind, that IDCC's 3G percentage royalty rates are significantly less than its 2G percentage royalty rates.
Rox re 3G royalty rates you said:
...."so 300M units @ $300M revenue = $1 per unit......sounds about right for the average between CDMA2000 and WCDMA, fixed and per unit......not sure where you got the $1.50 from.....sounds like Mickey's $2 per unit from old presentations. There are goals, then there is reality"
First, I think that you are correct in that IDCC is probably currently earning an average royalty of somewhere around $1 per 3G handset. Some of the older 3G licensees, especially the Japanese (Sharp, NEC, Panasonic) pay significantly more than $1 per 3G handset. However, some of the newer 3G licensees (Samsung, LG, RIMM, and Apple) pay significantly less than $1 per 3G phone IMO. I am also of the opinion that IDCC's 3G royalty rates are significantly lower than its 2G royalty rates.
As to where Loop got the $1.50 3G royalty rate, it was from comments from CEO Bill Merritt. Merritt was tossing around both $2 and $1.50 per 3G handset as late as January 2008. I don't think Merritt has had much to say, if anything, about IDCC's 3G royalty rates lately, ie within the past two years. Some of Merritt's comments about the 3G royalty rates provided in a previous post by Olddog as follows:
Posted by: olddog967 Date: Tuesday, December 02, 2008 11:08:36 PM
In reply to: None Post # of 240874
There has been a lot of posts about what Bill Merritt and a $2.00/unit royalty rate. The following are statement made during 3 prior presentations. Although they were presented over a year and a half period, his remarks were pretty consistent. I would summarize his remarks as (1) IDCC had been receiving an average of about $2.00 per 3G unit, (2) he expected the average rate to go down over time, and (3) if we were to hold at an average of $1.50 per unit in the future we would be receiving significant revenues.
I doubt that this will settle the argument, but at least it should be discussed on a factual basis of what was stated.
Needham & Company, Jan 2008
So give a little bit of background here with respect to what we derive today for royalties on 3G terminal units. Our average royalty, meaning if you took all of the 3G units that are shipped under license for us and you divided that into the revenue that we derive from those units, we get about $2 per unit today for 3G terminal unit shipments. We have as we've mentioned a few times about 30% to 35% of the market under license. So over time if you get out to 2012, we obviously have this significant increase in the number of 3G units that are sold. There will be of course some price decline over that period of time, so we expect that our average royalties will come down. As an example, just to use one number, if we can hold anyone in the $1.50 range over time,then the revenue for the Company will be $1 billion, all of that revenue being able to be achieved through the resources that are in place at the Company today. So just a significant level of operating leverage within the Company.
Needham & Company, Jan 2007
The Company's business model at the end of the day is combining both the patent and the product business. Our goal is to derive revenue on every 3G terminal that is sold. Today, our average receipt on phones sold, 3G phones sold, is a little bit north of $2 right now, so we're doing pretty well.
Certainly, the price of the [spike] phones will come down over time and since a lot of our royalties are based upon percentage-based royalties, then of course the royalty will come down.
The way we deal with the declining price in the market is to add value to our offerings. So today, we get an average of $2 on a patent offering. By bringing the software into the equation and the ASIC into the equation, you can continue to hold that number. Just as an example, if we were to hold even $1.50 a unit and if we were to achieve the same level of market penetration that we achieved on 2G, namely in that 75% range, then you are talking about $900 million of revenue for the Company. So it's a business model that we think is well-grounded; it's a business model that has produced very substantial cash flow over the last few years; it's a business model that we think has a lot of legs going forward, and one that we are pretty excited about. So the opportunity for us I think is real good. Again, we are very well positioned in what is the largest consumer market in the world, and we will continue to drive very heartedly.
Bear, Stearns & Co., Jun 2006
So what does that mean? Today, we receive somewhere north of $2 per unit on an average, with respect to WCDMA terminal use. And [as] I said, we have 35 to 40% of the market [covered]. So we will do two things. We'll use our patent position to drive our coverage in the market. Patent position gives us entitlement to cover 100% of the market. We will then use the patents as well - our product position to drive the amount of money which we receive on each unit.
So if we use 2010 as an example, if we can get an average of $1.50 per unit which is lower than where we are today, and we can get that on 75% of the market that means our annual revenue will be about $800 million a year. Several things about that. One, we can generate that revenue without any significant growth in the company. Today we have a very strong patent licensing program and products programs, and those programs will largely be the same as we go after this revenue. Certainly there will be some growth, but we don't need to grow the company substantially to get there.
Jimlur re Rimm or HTC cracking 10% threshold you said:
...."I think if HTC or Rimm became a 10% provider of revenues it might get us to the $30.00 area. JMO"
I think it is much more likely for RIMM to become IDCC's next 10% revenue provider, rather than HTC. If you analyze IDCC's Revenues by country in its latest 10K for 2009: Canada provided $27.4m or 9.2% of IDCC's total $297.4m revenues; whereas Taiwan generated only $15.4m or 5.2% of IDCC's total revenues. I know of only two Canadian licensees: RIMM and Sierra Wireless, whereas there are at least 5 Taiwan licensees: HTC, Quanta, Arima, Inventec, and Asustek.
I would estimate that RIMM generated at least 90% of Canada's IDCC revenues, and I would doubt that HTC generated anywhere near that high percentage of Taiwan's IDCC revenues. Also Canada's revenues have increased significantly during the last three calander years: $14.6m in 2007, $19.m in 2008, and $27.4 in 2009. Taiwan's revenues show much less increases: $11.3m in 2007, $14.4m in 2008, an $15.4m in 2009. I think this quarter RIMM will break the 10% revenue threshold due to their significant increase in units sold during 2010. A couple of reposts on this as follows:
Posted by: rmarchma Date: Sunday, June 27, 2010 4:34:38 PM
In reply to: None Post # of 292738
RIM shipped 11.2m smartphones in its fiscal first quarter
The royalties from these shipments should hit IDCC's financials in the second quarter. IDCC has guided second quarter revenues to be between $81m to $83m. If IDCC's actual second quarter revenues come in say at the guided midpoint of $82m, then the 10% separate disclosure requirement threshold would be $8.2m or more in royalty. If RIM's royalty is a least 73 cents per smartphone ($8.2m estimated threshold royalty / 11.2m RIM units sold), then they should finally break though the threshold and require separate disclosure of its actual royalty to IDCC in the second quarter.
"RIM's FYQ1 2011 report shows greater revenue, 11.2 million BlackBerry smartphones shipped
News by Todd Haselton on Friday June 25, 2010.
Research in Motion (RIM) has released its earnings for the first fiscal quarter of 2011.... Shipments of 11.2 million units during the quarter represented a 43 percent increase over the same quarter last year. RIM also noted that it sold its 100 millionth BlackBerry during the first fiscal quarter of 2011.
Posted by: rmarchma Date: Sunday, June 27, 2010 7:50:24 PM
In reply to: olddog967 who wrote msg# 292039 Post # of 292738
Olddog re when RIMM's fiscal quarterly sales are reported by IDCC
I knew that RIM's fiscal first quarter ended at the end of May, but I still believe that RIM's unit sales through May will be picked-up in IDCC's second quarter financials. Although RIMM probably has 45 days after the end of May to get its sales report in to IDCC, it still should be received by the middle of July by IDCC, at the latest.
However, I won't rule out the possibility that it might be RIMM's previous fiscal quarter unit sales of 10.5m smartphones at the end of February 2010 that will be picked-up in IDCC's second quarter royalties ending June 30, instead of RIMM's 11.2m smartphone sales at the end of May 2010. The only difference in my previous hypothetical scenario would be that RIMM's per unit royalty would need to be at least 78 cents ($8.2m estimated threshold royalty / 10.5m units sold), rather 73 cents ($8.2m / 11.2m units) in order to break through the 10% threshold requirement for separate disclosure.
Ziploc re the Apple license you said:
...."Apple's needing to sign a new license in 4 years at presumably a much higher rate introduces an interesting possible scenario."
First I should have probably recapped the Apple license as follows:
(8) Apple: Expires June 2014 and was effective June 2007 for a period of 7 years or 28 quarters. From all indications thus far, the total fixed fee is $60m or $2.14m fixed-fee per quarter for 2G and 3G iphones. The money was received in three installments of $20m each beginning in the third quarter of 2007. No indication of any paid-up provisions or any other provisions.
From the 2007 10K as follows:
..."2007 Patent License Activity
During third quarter 2007, we entered into a worldwide, non-transferable, non-exclusive, fixed-fee royalty-bearing patent license agreement with Apple Inc. (“Apple”). Under the seven-year license agreement, effective June 29, 2007, we granted a license to Apple under our patent portfolios covering the current iPhone (TM) and certain future mobile phones, if any."
From the 2007 third quarter 10Q as follows:
..."During third quarter 2007, InterDigital Technology Corporation, Tantivy Communications, Inc., and IPR Licensing, Inc. (collectively, “The InterDigital Licensing Subsidiaries”) signed a worldwide, non-transferable, non-exclusive, fixed-fee royalty-bearing patent license agreement with Apple Inc. (“Apple”). Under the seven-year license agreement, effective June 29, 2007, The InterDigital Licensing Subsidiaries granted a license to Apple under The InterDigital Licensing Subsidiaries’ patent portfolios covering the current iPhone (TM) and certain future mobile phones, if any.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
We generated positive cash flow from operating activities of $133.6 million in first nine months 2007 compared to $315.8 million in the first nine months 2006. The positive operating cash flow in first nine months 2007 arose principally from receipts of approximately $254.5 million related to 2G and 3G patent licensing agreements. These receipts included the second of three $95.0 million payments from LG Electronics (“LG”), a new prepayment of $23.5 million from an existing licensee, the first of three fixed $20.0 million payments from a new licensee, $11.2 million non-recurring payments from Sony Ericsson and $21.5 million of prepayments and $83.3 million of current royalty payments from other existing licensees."
(My Additional Notes: the only NEW IDCC licensee during the first three quarters of 2007 was Apple, so the above bolded and underlined phrase has to refer to Apple. Now if this $60m indicated total fixed royalty or $2.14m fixed amount per quarter is all the revenue that is due directly from Apple during the entire 7-year initial licensing period, then I would agree with your presumption that Apple would have to renew its license at the end of the current term in four more years at a much higher royalty rate or fixed amount.
Apple got a steal of a deal during the initial term, if all they have to pay IDCC is $60m. Many hope that there will somehow be additional revenues due from Apple during this initial 7-year term through some type of reset provision or per-unit kick-in provision or threshold provision. However, there has been no indication thus far of any such provision in the initial Apple license agreement. If there was actually any such additional provision, I believe that it should have been disclosed at the onset of the agreement, or certainly at the point that any additional undisclosed provision actually "kicked-in". I'm virtually certain that there has been no additional revenues directly from Apple through 2009, other than the indicated $2.14m per quarter or $8.56m per year, based upon the revenues by country chart in the latest 10K.)
Fish re earnings
I don't disagree with anything you said in the referenced post.
CC Writer re IDCC licenses you said:
..."How can you say I am wrong when IDCC states:
Our patent license agreements are structured on a royalty-bearing basis, paid-up basis or combination thereof.
I stated: What I take from this paper, is a Fixed Fee Royalty-Bearing License is a combination of fixed fee and per unit royalty."
I think you are trying to say that a "Fixed Fee Royalty-Bearing License" is a combination of a fixed fee component and a per-unit component, which is not true. If an IDCC license is described only as fixed fee royal-bearing, then it only has a fixed fee component and not any per-unit component. The following statements would be true:
IDCC's royalty-bearing licenses are fixed-fee, or per-unit, or a mixture/combination of fixed-fee and per-unit. (IDCC has only identified one existing license as being a mixed fixed-fee and per-unit license, although management has indicated that future licenses might take this combination form).
IDCC's licenses can be royalty-bearing as to some standards and non-royalty bearing/paid-up as to certain standards. For example, NEC and Panasonic have per-unit royalty-bearing licenses as to 3G standards, but are paid-up and non royalty-bearing as to 2G standards. LG will have a paid-up license for 2G at the end of this year, but will need to renew its license with IDCC for 3G to cover 2011 and beyond. (Nokia and Sony-Ericy have non-royalty bearing paid-up licenses for 2G, but are still unlicensed for 3G).
The following repost provides some additional info re IDCC's specific licenses:
Posted by: rmarchma Date: Monday, March 01, 2010 6:42:09 AM
In reply to: rmarchma who wrote msg# 284677 Post # of 292529
Expiration dates of significant licenses listed in chronological order as follows (revised):
(1) Kyocera: Expired June 2009. $2.5m fixed per quarter for 5 years for CDMA2000. No indication of any paid-up provisions, and we a fairly sure that it has not been renewed yet.
(2) Lucent: Expires October 2010. $700,000 fixed per quarter for 5 years for CDMA2000. No indication of paid-up provisions, so it will need to be renewed when license expires.
(3) LG: Expires at end of 2010. $14.25m fixed per quarter for 5 years for 2G/3G. The cash was received in 3 annual installments of $95m each, ending in 2008. Single-mode 2G will be paid-up when license expires, but 3G will need to be renewed. IDCC is at work already tring to renew the 3G/4G LG license per the latest 10K as follows:
"Expiration of the LG License
In December 2010, we will complete our amortization of $285.0 million of royalty revenue associated with our patent license agreement with LG. LG contributed approximately $57.5 million or 19% of our revenue in 2009. This license covers the sale of (i) terminal units designed to operate in accordance with 2G and 2.5G TDMA-based and 3G standards, and (ii) infrastructure designed to operate in accordance with cdma2000 technology and its extensions up to a limited threshold amount. Under the terms of the agreement, LG paid $285.0 million in three equal installments from 2006 through 2008. Upon expiration of the agreement, LG will receive a paid-up license to sell single-mode GSM/GPRS/EDGE terminal units under the patents included under the license, and become unlicensed as to all other products covered under the agreement.
We continue to place substantial focus on renewing agreements that have or will expire and expanding our patent licensee base, both with the top tier handset manufacturers and other market participants."
(4) Sharp: 2G PDC/PHS expires in April 2011, but virtually no current PDC revenues from this license. Per-unit license for 2G GSM and 3G standards have no fixed expiration date (license expires when last applicable patent expires).
(5) Samsung: Expires at end of 2012. $25.7m fixed per quarter for 4 years for 2G and 3G. 2G will be paid-up in 2010, but 3G will need to be renewed when license expires at the end of 2012. Samsung is paying a total of $400m in four six-month installments of $100m each, with the last installment payment due in July 2010.
(6) RIM: Expires at end of 2012. Nothing indicated about any paid-up provisions. Therefore, I assume that 2G and 3G will need to be renewed when the per-unit license expires, although 2G should be about gone by that point.
(7) Cinterion: a new license signed in 2009 that will expire at the end of 2012. From the latest 10K as follows:
"In third quarter 2009, we entered into a non-exclusive, non-transferable, worldwide, royalty-bearing, convenience-based, patent license agreement with Cinterion Wireless Modules GmbH covering the sale of Machine-to-Machine (“M2M”) modules and PC Cards designed to operate in accordance with 2G and 3G Standards for the period January 1, 2009 through the end of 2012."
(8) Apple: Expires June 2014. From all indications thus far, $2.14m fixed per quarter for 7 years for 2G and 3G. No indication of any paid-up provisions.
(9) NEC: per-unit license for 3G standards due to expire at the end of 2015. 2G has already expired.
(10) Pantech: Expires at the end of 2016. New fixed-fee licensee signed 9/21/09 that covers about everything: 2G, 3G, LTE, and Wi-Max/Bro. Either $111.5m or $121.5m will be earned over a 29 quarter period = $3.84m to $4.2m per quarter. Also there could be additional revenues if sales exceed a certain threshold amount. See my following linked post for additional details re the Pantech license:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47159046
(11) Panasonic (Matsushita): No expiration given or indicated for the per-unit 3G license. 2G is already paid-up.
(12) Toshiba: Per-unit license for 2G GSM and 3G have no fixed expiration date (license expires when last applicable patent expires). Paid-up for 2G PDC/PHS.
(13) HTC: Per-unit license for 2G and 3G with no given or indicated expiration date.
(14) Sierra Wireless: Per-unit license 2G and 3G with no given or indicated expiration date.
CC Writer re fixed-fee royalty-bearing licenses you said:
..."What I take from this paper, is a Fixed Fee Royalty-Bearing License is a combination of fixed fee and per unit royalty."
I think you're wrong about your quoted conclusion. IDCC uses the term "royalty-bearing" for both fixed-fees licenses and per-unit licenses. Per-unit licenses are either prepaid for several quarters or years in advance or involve current royalty payments each quarter. In contrast to royalty-bearing, a non-royalty bearing license would be one that is in a "paid-up status" for a particular standard. Note the following from the 10K:
"Patent License Agreements
Our patent license agreements are structured on a royalty-bearing basis, paid-up basis or combination thereof. Most of our patent license agreements are royalty bearing......Upon signing a patent license agreement, we provide the licensee permission to use our patented inventions in specific applications. We account for patent license agreements in accordance with the guidance for revenue arrangements with multiple deliverables and revenue recognition . We have elected to utilize the leased-based model for revenue recognition, with revenue being recognized over the expected period of benefit to the licensee. Under our patent license agreements, we typically receive one or a combination of the following forms of payment as consideration for permitting our licensees to use our patented inventions in their applications and products:
Consideration for Prior Sales: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented inventions prior to signing a patent license agreement with us or from the resolution of a disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive consideration for prior sales in connection with the settlement of patent litigation where there was no prior patent license agreement. In each of these cases, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price and determined that collectability is reasonably assured.
Fixed Fee Royalty Payments: These are up-front, non-refundable royalty payments that fulfill the licensee’s obligations to us under a patent license agreement, for a specified time period or for the term of the agreement for specified products, under certain patents or patent claims, for sales in certain countries, or a combination thereof — in each case for a specified time period (including for the life of the patents licensed under the agreement). We recognize revenues related to Fixed Fee Royalty Payments on a straight-line basis over the effective term of the license. We utilize the straight-line method because we cannot reliably predict in which periods, within the term of a license, the licensee will benefit from the use of our patented inventions.
Prepayments: Up-front, non-refundable royalty payments towards a licensee’s future obligations to us related to its expected sales of covered products in future periods. Our licensees’ obligations to pay royalties typically extend beyond the exhaustion of their Prepayment balance. Once a licensee exhausts its Prepayment balance, we may provide them with the opportunity to make another Prepayment toward future sales or it will be required to make
Current Royalty Payments.
Current Royalty Payments: Royalty payments covering a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period.
Licensees that either owe us Current Royalty Payments or have Prepayment balances are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We typically receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. We recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is very limited.
The exhaustion of Prepayments and Current Royalty Payments are often calculated based on related per-unit sales of covered products. From time-to-time, licensees will not report revenues in the proper period, most often due to legal disputes. When this occurs, the timing and comparability of royalty revenue could be affected..... In cases where we receive objective, verifiable evidence that a licensee has discontinued sales of products covered under a patent license agreement with us, we recognize any related deferred revenue balance in the period that we receive such evidence."
My Additional Notes: Now IDCC can have hybrid or mixed type licenses, which are a combination of fixed-fee and per-unit. However, Samsung is not a mixed fixed-fee per-unit license, it is strictly a fixed-fee license. Merritt has mentioned in a CC that he envisions more of IDCC's future licenses might be "hybrid"/mixed type licenses. At this point, IDCC has identified only one such hybrid type mixed fixed-fee per-unit license that ocurred in the third quarter of 2008 from the 10Q as follows:
..."Patent Licensing
In third quarter 2008, our recurring patent licensing royalties of $51.6 million decreased by $4.3 million from second quarter 2008 due to decreased royalties from our Japanese licensees and a one-time contribution to second quarter 2008 recurring patent license royalties of $1.3 million associated with one of our licensees transitioning from per-unit royalties to a mix of per-unit and fixed-fee royalties.”
Pochemun re Samsung license
Samsung is a fixed-fee license and not a per-unit license. IDCC is entitled to receive a total fixed fee of $400m from Samsung for the 2G license term becoming paid-up at the end of 2010 AND for the 3G license term ending December 2012, regardless of how many units Samsung actually sells during the license period. From the latest 10K:
2009 Patent License Activity
"On January 14, 2009, we entered into a patent license agreement (the “2009 Samsung PLA”) with Samsung Electronics Co., Ltd. of Korea (“Samsung”) covering Samsung’s affiliates, including Samsung Electronics America, Inc., superseding the binding term sheet signed in November 2008 by such parties. The 2009 Samsung PLA terminated the 1996 Samsung Agreement. Under the terms of the 2009 Samsung PLA, we granted Samsung a non-exclusive, worldwide, fixed fee royalty-bearing license covering the sale of single mode terminal units and infrastructure designed to operate in accordance with TDMA-based 2G Standards that is to become paid-up in 2010 and a non-exclusive, worldwide, fixed fee royalty-bearing license covering the sale of terminal units and infrastructure designed to operate in accordance with 3G Standards through 2012. Under the terms of the 2009 Samsung PLA, the parties moved to end all litigation and arbitration proceedings ongoing between them. Pursuant to the payment option selected by Samsung, Samsung has agreed to pay InterDigital $400.0 million in four equal installments over an 18-month period. Samsung paid the first two of four $100.0 million installments in 2009. We received the third $100.0 million installment in January 2010."
(My Added Note: the 3G portion of the current Samsung license does not become paid-up at the end of 2012. This means that Samsung and IDCC will need to renegotiate a new 3G/4G license at the end of 2012 covering 2013 and beyond.)
Olddog re LTE and fixed-fee licenses you said:
...."While under a 3G per unit license the licensor most likely would be covered for a 3G/LTE dual/(multi)-mode product, I believe that may not be true when the 3G license is for a lump sum amount.....Below are some of the definitions contained in the Samsung Patent License and Settlement Agreement. The way I read these terms is that if Samsung produces a dual/(multi)-mode 3G-LTE product, that product is not covered by the license."
I agree with you that generally IDCC's older fixed-fee licenses do not include LTE, whereas IDCC's existing 3G per-unit licenses would include 3G/LTE multi-mode products. I think Merritt pretty much said that in a previous CC when asked about LTE licensing.
This is good in that per-unit licensees would still keep paying royalty to IDCC on 3G/LTE dual-mode products without having to sign a new license agreement, whereas fixed-fee licensees would have to add LTE to their licenses and presumably pay additional money for LTE products. However, IDCC latest fixed-fee license with Pantech specificly includes LTE and LTE-Advanced products as part of its negotiated fixed-fee.
Eric re LTE specific licensees you said:
...."None are yet licensed for LTE by InterDigital for InterDigital's self-declared essential LTE OFDMA/OFDMA IPR,so far as I know (update me if any are please)"
Pantech's license specificly lists LTE as one of the licensed standards as follows from the 10K:
...."In third quarter 2009, we entered into a non-exclusive, non-transferable, worldwide, royalty-bearing, convenience-based, patent license agreement with Pantech Co., Ltd. (“Pantech”) (formally known separately as Pantech Co., Ltd. and Pantech & Curitel Communications, Inc.) covering the sale of terminal units designed to operate in accordance with 2G, 3G, LTE, LTE-Advanced, WiMax and WiBro, and certain other current and developing standards through the end of 2016. Pantech has agreed to pay the license fees and any other royalties under the agreement in installments over the life of the agreement. Additionally, we acquired a minority equity interest in Pantech."
I believe that Merritt has stated in a CC that if IDCC's existing licensees are licensed for 3G, then this would also cover any LTE products sold by a 3G licensee, as long as the LTE product was dual-mode with a licensed 3G standard.
Olddog re when RIMM's fiscal quarterly sales are reported by IDCC
I knew that RIM's fiscal first quarter ended at the end of May, but I still believe that RIM's unit sales through May will be picked-up in IDCC's second quarter financials. Although RIMM probably has 45 days after the end of May to get its sales report in to IDCC, it still should be received by the middle of July by IDCC, at the latest.
When I was a corporate controller, it was our policy to keep Accounts Payable open for at least two weeks after the end of the quarter to properly accrue the quarterly expenses for the quarter. For example, if an invoice was received by us on July 14 that pertained to services used in June or earlier, then we would accrue the expense and payable as of the June 30th second quarter. Revenue reports could and should easily fall under a similar type of accrual policy.
However, I won't rule out the possibility that it might be RIMM's previous fiscal quarter unit sales of 10.5m smartphones at the end of February 2010 that will be picked-up in IDCC's second quarter royalties ending June 30, instead of RIMM's 11.2m smartphone sales at the end of May 2010. The only difference in my previous hypothetical scenario would be that RIMM's per unit royalty would need to be at least 78 cents ($8.2m estimated threshold royalty / 10.5m units sold), rather 73 cents ($8.2m / 11.2m units) in order to break through the 10% threshold requirement for separate disclosure.