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Leaked? No. Anticipated? Yes.
I was expecting the staff to have the same position and I'm surprised you weren't as well. The same case and facts as before, same staff attorney, the odds are he's going to have the same opinion. Yes, he heard further arguments after his preliminary opinion was given in Sammy, but it may not have convinced him or he be required to base his opinion in this case on only the preliminary evidence presented here. I do believe that most unbiased investors were expecting the same thing. If there was a leak, there would've been far more volume during the downtrend and it would've included a spike when the leak happened. The trading looked unsuspicious to me.
That's why there was that Jagfn rumor a couple of weeks ago. Shorts seem to plant those whenever they are getting ready to sell. I sold about 30% of my position when that rumor hit. My plan was to buy back after the no violation ruling. However I saw the stock price get beat down to levels so low in anticipation of the hearing that I bought back late Friday as I saw little remaining downside, even with a "no violation" ruling and if the staff did change their mind, there would've been a big jump. The whole thing looked like a "sell on the rumor, cover on the news" situation, similar to what happened when slimchip was abandoned. IDCC's price is at such a discount to its fair value that value investors jump in to buy on any weakness, and that hopefully includes the company buy back.
I also think you're wrong about the compensation plan passing. Almost all the posts about it indicate "no" votes. There have been no arguments in favor of the issue. I do realize that the institutions vote will decide, but institutions have been increasingly wary of giving more compensation to management and voted strongly against the last plan. Of course, management didn't let a "no" vote stop them last time, as they came up with the RSUs and other methods to keep the gravy train rolling, and I'm sure they will again. However I do believe the shareholder rejection did keep them from being as brazen as they would've been had they gotten a yes.
What's going to happen? In the second week of August, IDCC will settle with Nokia for $60-$80 million a year on a go forward basis (all prior infringement forgiven) that will add something over a buck a share in earnings (after taxes) and further swell the cash. IDCC will then sign the other holdouts over the following year and push the earnings to $4-$5 a share. Given the huge cash balance and the earnings, I can't see IDCC trading at less than $50. Over course, I also can't see why IDCC is not trading over $35 right now. I believe value and price converge in the long run. With IDCC it just seems to be a triathalon.
Ronny, you've overstated the cost of dilution
Your point is an excellent one - management has fared exceptionally well for a producing good but far from spectacular results. JDGator also made some valid observations about management being first in line to reap rewards far beyond their salaries for doing the job the were hired to do.
However the cost of the buybacks to undo the dilution caused by stock options needs to be reduced by the exercise cost of them that is paid to the company. RSUs, on the other hand, have eliminated that little nuisance from the equation. I would guess that the actual cost is less than half of the total you had, but even at that it comes to dollars per share, which is huge.
Difference between QCOM and IDCC licensing
Very simple, QCOM went to the court house steps, received a settlement offer and said f you, our IP is essential, valid and infringed and we're not going to accept a half assed offer because we're scared s-less we might lose. They won their case, suddenly had legal leverage and were able to use it to get very lucrative contracts with every tier one, tier two and mom and pop cell phone company.
IDCC tried the same thing against MOT and lost. They had to scramble to survive. Since that time they have always settled before any decision was rendered. Maybe that was the best strategy, but if it continues IDCC will get mediocre deals compared to what QCOM gets. IMO, the ITC case against Nokia is IDCC's last, best chance to make a stand that will allow IDCC to monetize thier IP in line with their investor presentation. Otherwise they will continue to sign progressively poorer contracts as everyone realizes that IDCC will always fold.
See my post http://investorshub.advfn.com/boards/read_msg.aspx?message_id=36619695 for an explanation of my reasons for why I hope IDCC will not back down this time.
Staff report and IDCC share price
If you check the boxes to compare IDCC to the NASDAQ, Dow and S&P, the attached graph shows IDCC moving with a very high correlation to the overall market. There have been no significant price movements that went counter to the overall market and the volume has not been high. IDCC has been excellent about not leaking news and in the Sammy trial there was no indication of the staff report's content until the IDCC press release. I see no evidence that IDCC's price is indicative of any conclusion of the staff in the Nokia trial.
http://finance.yahoo.com/q/bc?s=IDCC&t=5d&l=on&z=m&q=l&c=
Form 4 out, nothing important
Small sale by an officer.
http://files.shareholder.com/downloads/IDCC/507140542x0xS1209191-09-21255/1405495/1209191-09-21255.pdf
Something I'd never noticed before - there is a comment about the reason for the sale, saying that the sale was to diversify the individuals investment portfolio.
Frank
I think it's time to make a stand.
I explained why I thought IDCC should go to a decision at the ITC in this post.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=36619695
In your post, you seem to feel that the President would overturn an ITC ban. If you're right, then we would be screwed, as we would were we to not get a ban from the ITC. Those are the risks. I respect your opinion and it is valid. I would be crushed if IDCC did not get a ban and had to start the legal process from square one in DE. But I'm sick of IDCC putting up the good fight, then settling for far less then the company has indicated their IP is worth. If one always backs down, then everyone will take advantage of it.
I know there are going to be two camps on this. One that wants to stand up to the big bully, knowing that it will either be very good or very bad, but let's show that we believe in our patents and will fight for them. The other side is that if we settle, even for as little as $300 million over five years, it will support a higher price and really limit any downside risk. However it will not provide anywhere near what the company has projected and make future negotiations tougher with this as FRAND, thereby also limiting the upside. That is a reasonable position, and probably one I should support with my total investment in IDCC, but I've always had the philosophy that one should go with the decision that has the highest expected value, even if there is great risk.
This is just noise, as management is going to make the decision based on far more information than we have. Like you, I sincerely hope we get a good agreement with Nokia this year and get the rest signed up soon thereafter so that IDCC will provide us with some selling opportunities over the next year or two.
Hi Mr. Dzr,
I don't know Count... granted today is a very good day, but it is kind of bittersweet to me. a month or so ago we were in the 30's and the slimchip was still in play, at least we thought it was.
The last month was bitter, today nothing but SWEET for me. I was never excited about producing a chip. What I love about IDCC's business model is that sales drop to the bottom line. A product would've definitely helped REVENUES, but the affect on net income wasn't so sure. It's a highly competitive market and you can take losses. In addition, IDCC would've needed to license from the folks they are trying to license, which may have muddied the waters in those negotiations. I was hoping IDCC could sell the SlimChip. I never had any big expectations for the product just because of the numerous large and experienced companies in the market.
The share price is still lower than a month ago, but it's back to where it was two months ago and is again looking very strong in relation to the overall market over most time frames. IDCC is significantly reducing expenses for the long term. This is a very good thing. It should help us get back to the 30's and beyond. I don't know how quickly it will come, but given IDCC's earnings, cash flow and incredible balance sheet, it is easily worth $40 a share IMO. I'm hoping this will help others see that value.
Frank
This makes no sense, but lots of dollars
What a sweet, sweet day. After weeks of the share price languishing at levels that had me questioning my sanity, today, with the markets off 4%, we get the "bad" news that IDCC is writing off the SlimChip. So what happens? We pop 20%. If all I knew was the market and the press release, I'd be hoping to stay out of the teens today. While I understand that this is a good thing long term (reducing expenses), given the market's recent ability to ignore any positives in IDCC, I would've been very nervous about the price action today. WTF is going on?
My only guess is that the shorts could see the SlimChip write off coming, and were shorting IDCC heavily in anticipation, shorting on the rumor and planning on buying on the news. When the news hit, IDCC did an OUTSTANDING JOB of focusing on the reduction of recurring expenses and pointing out the one time charge would be largely non-cash, which translates into higher net income for continuing operations and increased cash flow for 2009 from the restructuring. Therefore the market saw this as a positive, and the shorts, who were waiting on this news to cover, were disappointed to find that the news did not cause the selling they were expecting. At this IMO ridiculously low share price, there are not many looking to sell. With no other negative catalysts on the horizon, they have to cover. Just thought of one more thing...IDCC may have been waiting for the release of this news to begin their buyback, so that may have ignited the rally today. Glad to see I'm not the only one who gets fooled by the short term irrationality of the market.
For the conspiracy theorists out there, let me throw this idea out there. Rakitno shows up on this board to state with near certainty that the SlimChip is not going to be written off. Accountants, like attorneys, rarely speak in such absolutes when discussing future events. When asked to clarify and when presented with well reasoned opinions that the lack of any impairment at 12/31/08 did not assure the viability, he steadfastly stuck to his guns, never backing down an inch. Why did he show up here, pushing his "positive" opinion, calling himself an accounting expert and relentlessly refuting anyone who stated that the write off of the SlimChip was not nearly as unlikely as he stated? Maybe he is a short who wanted to build up the hopes of shareholders based on the SlimChip sale or product revenues, so that when this news hit, disappointed investors would sell into his friends’ short covering buying. For those who got so upset about some folks misspelling Rakitno's handle, in retrospect it may have been an accurate Freudian slip.
What I love about JimLur's board is the variety of smart and experienced people from many fields that contribute here. I look to opinions of folks who look at all the facts and give their opinions based on their expectations based on those facts, not their hopes. When RMarchma talks about accounting, I listen. His earnings projections have been more accurate than any others. IDCC often has unsuspected items which cause differences between Ronny's numbers and the actual, but his estimates are easily reconciled to the actual. When Olddog gives an opinion about anything, I listen. He does his research, he looks at all the information and when he offers his opinion it is well thought out and logical. So I will put much more stock in posters like Olddog and RMarchma than some newbie who's impeccable credentials are top secret - just trust him. Olddog, RMarchma, Data and Tom Carpenter are not always right, however they are just as likely to be too positive as too negative, and they are often very close to actual results. If you want to get a good feel for the future follow their posts and others like them. If you just want to work on your seating arrangements for the 2009 Houston 100 there are a number of other posters you can follow and +1.
Frank
I hope IDCC lets Judge Luckern decide Nokia
It appears to me that since the MOT debacle, IDCC's strategy has been to never risk another adverse decision. They have gone to the "court house steps" a number of times and walked away with what I found to be very disappointing results. The company apparently views the settlements differently, as each time money has rained down on management. I guess any time they don't lose a decision they view it as a big win. I hope management revisits that approach, as circumstances have changed.
After MOT, IDCC was in survival mode. They needed to do whatever they could to get money coming in the door. Things are different now. They have half the market under license. They have a strong cash position and no liquidity worries for years to come even if they sign nothing else. The time has come for IDCC to make their case and get a decision that will give them some leverage. Nokia and the rest of MENS now believe that IDCC will cave, so they will not give in. IDCC is going to have to show the willingness to go the distance to ever have a chance to get a good settlement.
IDCC is in as good a position as it will ever have with the Nokia ITC hearing. They have a judge who is smart and experienced in the area. He has and will spend the time to understand the issues. He knows the issues and the games Nokia has played. IDCC has had a dress rehearsal with Samsung and has learned from the experience. If IDCC has at least one valid and infringed patent, and there is no implied license, then he will rule in their favor. At that point, IDCC will have the hammer. Delay will become a severe problem for Nokia as they will not be able to sell in the US. With that leverage, IDCC should be able to get a good contract. Not FRANDly? Well, Nokia, we can litigate that for a couple of years while you sit out of the US market.
The Nokia contract will be the benchmark for all others, like Ericcson and MOT, as well as for the relicensing of LG, Samsung and others because Nokia is the big dog. The only way IDCC is going to get a favorable license is if they have some sort of court win to compel Nokia to pay or shut down. This will make a difference of hundreds of millions of dollars over the next five years, which will all drop go to the bottom line, less bonuses and taxes. QCOM could've followed IDCC's strategy of appeasement when their patents were under fire and easily achieved a 10 bagger. They went to the mat and the price exploded. IDCC is not in QCOMs position, but I think a win at the ITC will result in a share price at least double what a pre-decision settlement will bring.
What if they lose? That is possible and it would be worse than another mediocre settlement. However it would not be the end of the road. Losing the ITC case just means that we have to go back to court. A long and very unappealing process, but the ALJ's decision is not binding on the court. It would mean a couple years of no Nokia revenue, and it would be a big delay and weaken IDCC's position with the other licensees. So it is obviously a risk. However given the licenses, cash flow and earnings locked in right now and the current share price, the downside is small compared to the upside with a win.
I believe that IDCC has a good case and a reasonable chance of winning. If they win I see the stock price going well over 50 by 2010, and if they can resign others at increasing rates they will show growth that will generate a higher than average PE. If IDCC has essential patents, then they should get paid, and the only way it will happen is with a decision. If they don't, then they will have to settle for the much cheaper licenses like they signed with Samsung.
All the above is IMO. I am not an attorney nor knowledgeable about patents, so I am not competent to judge the merits of their case. I am assuming that IDCC has at least a 40% chance of winning when I say they should go to a decision. If management and the legal team sees at least that good a chance, I sincerely hope they make a stand with Nokia before the ITC.
A very interesting report from Trantum
They obviously have done their research into IDCC. The report addresses specifics that go beyond a surface level analysis. I enjoyed reading it. I like the fact that they are not afraid to project based on their expectations, including some future events that may be turn out to be quite different. It isn't a best case or worst case, nor does it exclude likely future events. They clearly lay out there assumptions and thought process and come to a conclusion. I really liked their outlook for possible successes in China and with Wifi.
Overall I think it is a reasonable report. It is more optimistic than I am in some places, and I'm more optimistic about other areas, particularly 2010 net income. Given that they projected future events, it is likely that they will have some misses when events unfold. That's okay with me - I like getting a reasoned opinion that isn't shy about including results from projected activity in the future. Another good resource to help with our due diligence.
I hope they have initiated coverage and will be present on future conference calls. From the report, it looks like they could ask some very good questions.
Slimchip impairment is not highly unlikely IMO
I sincerely hope IDCC is able to sell slimchip for a boatload of cash or otherwise turn it into a money making machine. However, you are treating a clean audit opinion like a guarantee of value. The auditor discusses issues with management to determine if any adjustments are required. Impairment is an accounting estimate, and therefore subject to interpretation. If IDCC can present a reasonable case for no impairment, then the auditor can use that as support for their not forcing an impairment charge. Other issues that might factor in to the decision include the fact impairment can not be recovered in future periods, so one wants to be very sure of the impairment before making the charge, and that IDCC's intent was to come to a decision by Q1 09, so the delay of the potential charge by one quarter would allow for a much more accurate assessment rather than making a guess. Also the auditor could be mindful that by forcing an impairment charge they might create a self fulfilling prophecy by writing down the value of an asset being marketed - not something they'd want to do. In addition, the statement was that there was no impairment as of 12/31/08. I don't know what type of additional scrutiny is given to subsequent negotiations if management represents that there have been no significant changes to the valuation in their rep letter. Barring an actual transaction, I don't know that the auditor would be required to re-evaluate the potential impairment.
I don't know if there will be an impairment, but I think terming it "highly unlikely" is optimistic. An audit report is not a guarantee. As an accountant who might some day be sued, it is really foolhardy to imply that it is.
Data, Great must read post.
I'd like to publicly thank you for your continuing contributions here. I especially enjoy it when you are bullish.
What makes your positive posts so wonderful for me is that you have in depth knowledge of the industry, you are smart and you call it like you see it. Good, bad or in between, we get your honest opinion. Not always correct, but right more than wrong, and always well thought out. A top five poster in my book.
Thanks,
Frank
Thanks for the buyback KOP
IDCC share price is suffering from irrational depression. Unfortunately the only cash I have to invest right now is my small portion of IDCC's cash reserves. I'm very happy to have them increase my ownership by ~10% by investing a bit of that money into a great undervalued company. Markets are often irrational, however in the long run price will move towards true value. And I'm here for the long run.
With earnings likely to be over $2 a share for 2009 and over $3 a share in 2010, positive cash flow for both years (even with a big buy back), and a pristine balance sheet, I can't believe that IDCC value is less than $40 a share. So buy with both hands at these levels boys. It may not be the bottom, but IMO it is going to look damn cheap a year from now.
Frank
Olddog, right on the mark, as usual
The Compensation Committee can take other factors into consideration when making an award, but if the LTCP is to have any validity these factors should be disclosed rather than just saying well done for signing LG and Samsung.
I don't think Mr. Merritt said that
To Meritt- You have stated that the AAPL agreement is in line with IDCC's current average royalty of nearly $2 per 3G device sold.
My recollection is that Mr. Merritt made a statement indicating that the Apple contract was consistent with the strategic business plan. To my knowledge, there has been no indication from the company about the per unit rate. If Apple was an > 10% revenue source in Q4, then we should be able to get a much better idea.
Eric, Thanks for your contributions here
The referenced post, like most of your posts, is of great help in keeping our due diligence on the industry (as it affects IDCC) up to date. I've found your opinions to be well informed and well thought out. I'm really grateful to you for sharing your insights here, especially since IDCC has not meet your criteria for taking on a position and likely won't for some time to come IMO.
Thanks again,
Frank
Background info on IDCC
Here's a link to a recent report by analyst Tom Carpenter.
http://wirelessledger.com/idcc_sam_raise_to_buy.doc
He has a good understanding of IDCC. He has followed it for years. Read through it and pay close attention to the recent contract with Samsung that pushed his estimated EPS for 2009 over $2 per share and the discussion of expectations from Nokia that push the 2010 EPS to over $3 per share. This will give you a good overview of IDCC as an investment. Note that IDCC has $57 million a year of prepaid revenues for 2009 and 2010 from LG and $100 million a year from Samsung for 2009-2012. These amounts are guaranteed income.
Most here, including me, think that Mr. Carpenter is being conservative in his expectations for earnings and for the multiple. I will be disappointed if 2010 does not exceed $3.50 a share and I expect that IDCC should be able to command a multiple of 18-20. In addition IDCC has over $6 share in cash, no debt other than the mortgage on its building, and another $6 per share in cash coming from the Samsung contract over the next 17 months. Other revenues from per unit licensees should cover the operating expenses. Mr. Carpenter has since downgraded IDCC from buy to neutral, which IMO is due to the $6 run up in the share price from the 27s to the 33s in the weeks after his recommendation.
Is this a good time to buy IDCC? Long term, absolutely IMO. Short term it may be choppy as the next big issue is Nokia, which has roughly twice the market share of Samsung and 4 times LG. Based on past history, this will go down to the August decision date, at which point there will be a settlement IMO. IDCC also is working on signing Sony-Ericsson and Motorola, which are have market shares similar to LG. When any of this happens I would expect the share price to permanently move higher. The wonderful thing about IDCC's business model is that when they sign new licenses, the revenue drop right to the bottom line, with only taxes as an incremental expense.
This board is populated with many investors that have followed IDCC for years and decades. There is an assumed knowledge base in most of the discussions that can leave a newbie out in the cold. If you do invest in IDCC, this board is an invaluable resource. There are industry insiders that understand the technology and the market, lawyers that follow the cases and provide insights, accountants to analyze the numbers, wall street professionals that look at the markets and institutional activity and those that bring news to this board almost instantly and never later than what gets to the investment community at large. The "high" PE is based on past earnings. Only those who take the time to look at the future and realize what the earnings will be understand what a value IDCC is at these levels. Once the revenues are reported then those investors are going to see a company with strong, growing revenues, stable costs, huge cash reserves (or the benefit of the use of that cash, whether it be acquisition of complimentary IP, additional buybacks of shares reducing the float, dividends or product development), and no debt, and they will discover IDCC and it will reach its full value.
Do your DD and take a good, hard look at our little gem here. I think it will be a good addition to your long term portfolio.
Jim, only per unit royalties lag a quarter.
Fixed fee revenues, contract work, expenses and everything else is reported in the quarter income is earned or revenues are earned. Only the revenues based on sales of licensed products are reported on a one quarter lag because it is not practical to get the current quarter results in time for it to be properly reported in that quarter.
OT - Testimony including the Q&A (Madoff)
http://www.c-span.org/Watch/watch.aspx?MediaId=HP-A-15082
Ronny, I think the $6 million is revenue
My assumptions are:
The $6 million was received and booked to deferred revenue.
IDCC will be getting 4 $100 million payments that will be booked to revenue at the rate of $25 million a quarter.
IDCC has no liability to Samsung or anyone else for repayment of the $6 million or any future required performance.
Therefore, the proper accounting treatment to offset the required debit to deferred revenue would be a credit (increase) to revenue. It's not a reduction of any asset, it's not a liability, it's not capital, so it has to hit the P&L. As far as the timing, that could be anything from as early as Q4 2008 to being spread over the next two or four years, depending on how the contract is worded. But if my assumptions above are accurate, it will have to be booked to revenue.
Olddog, I have great respect for you
You (Olddog) were not the target of my prior post. None of the "you" references in that post referred to Olddog. All the "you" references in this post refer to Olddog.
I'm sorry. You are IMO on of the top five posters on this board. I have nothing but respect for you and your opinions. You bring massive amounts information to this board, often by request and in minutes. You have every right to take umbrage at my words that you thought were directed at you, because, as you properly pointed out, you are nothing but respectful to Jim, and are among the best at keeping your disagreements to the substance of the issue and not making it personal. I do sincerely apologize to you for giving the impression that I was including you as the type of poster I was criticizing in my prior post.
I chose your post to respond to because, as usual, yours had the most specific data. In this case, the methodology of the discounting from $45 at the end of 2010 to get to the 2009 target of $39. Yes, we happen to disagree on this issue, but I respect your opinion. You have demonstrated a long history of rational thought. You base your opinions on facts and come to your conclusions by logic, not hope. I did not consider that the poster of the post I responded to would naturally think I was talking about him. I apologize for that mistake.
With great respect,
Frank
Mr. Carpenter’s logic (for the mathematically challenged)
we discount the $45 back one year to account for using a 2010 EPS estimate, which entails dividing $45 by our estimate of InterDigital’s cost of capital (we use 15%). This yields a $39 one year price target.
As he stated, he took his projected share price of $45 at the end of 2010 and divided it by 1.15 to arrive at his end of 2009 target of $39. If you apply the same calculation to get to the current price, you would divide 39 by 1.15 to get to the 1/1/09 value, then add 1.25% for the one month of current year appreciation and you get about 34.33, or about $1.00 above the price when he went to neutral. Seems logical to me to rate a stock neutral that is trading at 97% of the computed fair value.
Personally I believe his projected share price of $45 at the end of 2010 is at least 20% too low and I personally still have IDCC as a strong buy. I see at least $3.50 of earnings and a multiple of at least 15 plus cash on hand at the end of 2010. So I disagree with him. That does not mean that he has an agenda or that he is an idiot. He lays out his revenue and expense numbers, applies a PE and discounts it to current value. When the stock price approaches his current value he rates it neutral. When it is lower he rates it a buy. But because the price ran a quick $6 and he is actually paying close enough attention to make timely changes to his rating, some say he must be playing Jim. Because he is not as optimistic as I am, some say he is stupid and manipulating the stock. Absolutely mind boggling. Dispute the substance of his estimates and come up with your own valuation, but don’t just bitch because he isn’t pumping the stock the way you want.
Jim is an honest man that does his best to run this board for investors to stay informed about IDCC. He gets access to valuable information that others, like the revered teecee, could never get. It is unbelievable to me how so many folks feel no shame in benefiting from the incredible knowledge base here then pissing all over Jim because he doesn’t run the board to their liking. Please feel free to go elsewhere for your information – you won’t be missed here. At the very least, shut the f up about how Jim runs the board. If someone treats you to a ball game, don’t bitch because the beer isn’t cold enough. The complainers rarely contribute substance and most are free members. They love to talk about being loyal to IDCC, a truly idiotic notion. I am loyal to Jim Lurgio because he has provided a great resource and been a faithful steward of the various boards he’s managed over the years. He might make mistakes, but he is always striving to do his best. He gets no pay, no bonus, no options. Just an occasional thank you mixed in with the frequent complaints. So if you’re not happy here, please go to Atomic Bob's, where the most discussed topic is how bad IHub is. You’ll fit right in.
Frank
SlimChip demonstration
This may be a way to showcase it to potential buyers as well as potential customers. In fact, having some customer interest could help them make a sale.
Tom Carpenter is an analyst, not a pumper
Tom provides his thorough professional research on IDCC to Jim for this board as a courtesy. If you don't like his opinion, do the opposite of what he says, but don't bash him with illiterate rants (whole in are heads) just because he doesn't always say the stock price is going up every week. If you disagree with him, fine, post your opinion about IDCC and explain where you think he is wrong, but don't belittle him personally.
Two weeks ago Tom upgrades IDCC, with a year away target price 50% higher than what IDCC was trading at. He's a genius, perceptive, insightful because he says what we want to hear. Since then the stock climbs 30%. Based on his projection, he now expects the stock to climb less than 20% from its current level over the rest of the year. I'm sure there are many stocks that have that type of expectation, so he downgrades IDCC to an average ranking based on its significantly different valuation. It is not a knock on the company or a change in his expectations, it is adjusting his outlook based on the changed potential appreciation due to the higher share price. But now he's an idiot.
To me, downgrading when a stock's price climbs makes sense. I've always thought it was crazy when a stock would run and analysts would upgrade based on recent price performance without any change in the fundamentals. I personally think that Tom is being conservative in his EPS numbers and expected PE, but not overly so. So I am still very comfortable with my investment in IDCC. There very well may be a pullback in price after the recent strong climb because that's what stocks often do. If there is, I doubt any of the TC bashers will post their apologies as we all know for some it is far more important to be always positive on everything IDCC than to be correct.
Taking IDCC private
There have been a number of folks, including Tom Carpenter, who have mentioned the possibility of IDCC going private. I'd appreciate any information on that process and examples of other companies that have gone private. I am most interested in informed opinions based in factual information rather than guesses and hopes.
I hope to hold my IDCC stock until it reaches full valuation and so having IDCC go private is not something I think I want. I need to learn about it since it is a possibility and I don't understand how it would affect my investment.
Revlis, thanks for posting Nokia's motion
even though this part made me puke
Rather than condone InterDigital's delay tactics, Nokia submits...
Nokia has done everything short of pulling the fire alarm in the courthouse to delay this process, and now that IDCC doesn't want to give them a free peek at the Samsung proceedings, they accuse IDCC of delay. Has Blagojevich now joined Nokia's legal team to advise them on the fine art of denial? Is Nokia trying to get a Wikipedia entry under Chutzpuh?
Of course, Nokia fails to note that the initial decision date is not changed by their request, so denying their motion will not delay anything. Judge Luckern is very pragmatic, so he naturally would be inclined to eliminate duplicate efforts, but I hope he sees that Nokia is trying to take advantage of the delay caused by the Batts decision granting what he denied, and doesn't let Nokia get away with it. Nokia has been very successful in using creative legal maneuvers with little relevance to the case to gain advantage as the Court of Appeals spelled out in its reversal of Judge Batts, so hopefully the ALJ will begin to send a message to Nokia that he's not going to tolerate those tactics in this case.
Growth companies and dividends
The reason growth companies don't typically declare dividends is that they need to reinvest their profits into more factories and newer equipment or more locations and expanded inventory. They grow by increasing their output thereby creating more sales. IDCC is not a typical growth company. They absolutely need to continue to create intellectual property however they are successfully accomplishing that at current spending levels. Therefore they are and will be generating a great deal of free cash flow that is not required for them to grow the company.
The question is how should the use this cash to best enhance shareholder value. If they can acquire marketable patents at a good price that would be an excellent use of the cash. If there are no good opportunities found, then I like continued buybacks, which will provide EPS growth by making the EPS denominator of shares lower. I agree with Tom Carpenter that buybacks should be tactical, but since I view IDCC to still be significantly undervalued, I believe purchases at these levels to be wise ones. I also believe a regular dividend would add value as it would attract a whole new segment of the investment community. I don't like the one time dividend. Company declares dividend, pays dividend, stock falls by amount of dividend, we pay taxes and there is nothing to draw new investors. Buying a company is scary to me because successfully managing a business is far different than understanding the value of a company you want to acquire. Many a great company has spent their big profits on companies that ended up being busts. I like the couple of small moves that IDCC has made. Relatively small outlays that had limited risk and were complimentary to the business model. If IDCC does look at acquisitions my hope is that they are ultra conservative and stay well within their comfort zone. I sincerely hope that IDCC exits the product side completely. I love the IP royalty model. Producing products in a intensely competitive market is a tough way to make money. The worst use IMO would be just to sit on the cash. Keep a comfortable amount of liquidity to handle any reasonable contingency, but put the rest to use. Very low interest rates and a lack of absolute safety (if the banking system has failures, IDCC's cash would largely be beyond insured amounts) make it an unattractive choice to me.
The purpose of this discussion is not to try to tell management what to do, it is to help us understand how the strategy the company selects may affect the future share price so we can make our investment decisions. I'm very interested in how others view the potential choices.
More shares equals more liquidity?
That doesn't make sense to me. Maybe this is another real world situation where common sense does not work, so let me explain my thoughts so that I can be educated.
Assumption 1 - If a stock were to split, there would be the same amount of shareholders each holding the same percentage of outstanding shares.
Assumption 2 - Buy and sell decisions are made based on a dollar amount to invest, not an arbitrary share number (except for possibly rounding the traded number of shares).
Based on these assumptions, if a buyer wanted to invest $400,000 in a stock, they wouldn't care if it was 10,000 shares at $40 or 40,000 shares at $10. They would still need to pry the same percentage and value of shares from the same shareholder base.
Use of IDCC cash
I agree there are many cases when it is better to hold on to cash. However I don't think it is the case for IDCC at this point in time. IDCC will likely have over 500 million in cash in 2010 not counting any additional licenses. I don't believe the operating cash flow will be significantly negative for a few years at a minimum. Therefore I believe IDCC will have cash in far in excess of its needs and will have choices on how to use it.
I do believe that IDCC is going to appreciate quite nicely over the next couple of years. By buying back shares at these levels all the shareholders will benefit by the additional ownership as the market cap grows. I think putting the cash into IDCC stock will provide a very good return. Therefore I believe a buyback would be a good choice.
It is possible that IDCC may have a strategy to better use the cash. If so, then I hope they're able to successfully execute it. However I get very nervous about having a large pile of cash burning a hole in IDCC's pocket. If there is a great opportunity, take advantage of it. If not, don't force it. Sometimes the best investment decision is the buy you don't make.
As far as a split, it has no affect on market cap. Twice as many shares at half the price. Splits indicate a company that has done well, not necessarily one that is going to do well.
Buyback problems listed don't make sense
I can go into detail if it's important, but the prior post put it very simply and succinctly. If the buyback is at lower levels than the current stock price, then it was a good move. I'll add a caveat - if the buyback caused a cash flow problem that prevented the company from achieving even greater market cap appreciation because of a missed opportunity, then it was not a complete success.
I like buybacks better than dividends because it is like receiving a dividend that is reinvested in the company. If IDCC were to buy back say 5% of its shares, anyone who wants to take a cash dividend can sell 5% of their holdings, receive the cash, pay less tax then they would on a dividend because they have basis in the shares sold, and still own the same relative share of IDCC stock. If someone gets a 5% dividend and they want to reinvest, they have to pay tax on the entire dividend and then buy more stock to maintaining the same investment percentage.
I like dividends because many investors look for dividend paying stocks and a regular dividend can increase the value of the shares because of the yield.
However because management holds so many stock options and RSUs, IDCC is unlikely to go the dividend route. Even though the total return with appreciation + dividend might be greater with a dividend then the appreciation from a buyback, option and RSU holders only participate in the appreciation, so there bias would be to not pay dividends.
Why would IDCC want a shorter term?
It seems like it would be in IDCC's interest to have a long term agreement if they can get a reasonable rate either fixed, per unit or some sort of hybrid with a minimum and maximum based on actual sales and sales prices. I can't imagine IDCC has any more desire to enter into frequent negotiations than Nokia does. I can't say I agree with your statement that "Nokia simply has considerably better things to do with its time than after protracted negotiation and litigation to conclude a '3G' license with InterDigital then almost immediately commence new negotiation" based on their conduct over the past years. The appear to love to negotiate and litigate.
IDCC doesn't want to lock itself into a long term fixed fee contract if it assigns a low amount to out years' sales and revenues, and Nokia obviously is not going to want to commit to a long term payment that may proved to be overly generous. Maybe a minimum amount with additionally royalties for sales over a certain threshold and a cap on the total for any year can be worked out where both parties have a worst case guarantee and potential for better results if warranted by actual sales to give them the confidence to enter into a long term contract.
Thanks for your contributions to this board Eric. Your posts today have been outstanding and very helpful. I really appreciate your well informed opinions.
Frank
Nokia and renewels should provide increasing revenues
My hope is that Nokia's contract will run through at least 2013. That way even if IDCC continues to execute fixed fee licenses, they can get increasing earnings by getting bigger contracts when there are renewals. With the market increasing, it makes sense that the renewals will be for more money. My hope is that litigation won't be needed for further 3G licenses as once we've signed it would kill the FRAND defense and set a value. As Nokia showed with QCOM, far from a slam dunk, but a much better chance. By having the tier one on different renewal years this will give IDCC the ability to have consistent growth in earnings along with great visibility and a guaranteed minimum amount from the current fixed fees.
It seems to me that IDCC could reasonably record their fixed fee revenues on a increasing basis instead of straight line. Since the market is increasing, it makes economic sense to allocate the revenues lower in the first year and increasing based on expected sales volume in future years. I do not have experience in this type of revenue recognition, but it does seem like a rational methodology (similar logic to accelerated depreciation), and frankly seems like a more reasonable allocation of the revenue. Locking in earnings growth would be fantastic. If anyone has any input on whether this is allowable under GAAP I'd be very interested.
Thank you Tom Carpenter
for allowing Jim to post your report on this board. You are an experienced professional analyst who has focused on this industry and IDCC in particular. You participate in the conference calls and have a good understanding of the various issue of importance to IDCC. You provide financial results and realistic projections. When news comes out you quickly update your report to incorporate the recent events. Your reports are a great resource for anyone following or learning about IDCC. I greatly appreciate your contribution to this board and wanted to publicly thank you.
Jim, getting Tom's reports and sharing them here is one of the many things you do to make this board a great place to learn about and discuss IDCC. Thank you for giving me this incredible board which has enabled me to stay on top of IDCC so that I've been able to quickly get information and make informed investment decisions. You are a great leader of this band.
You assume away the risks in your question
If you don't consider macro issues and you take Nokia off the table, there are very vew risks at these price levels. However macro issues are a real risk. Also while IDCC can take Nokia to the mat, if they do and lose, then that means that IDCC is going to either have to settle from a weakened position or have to go to trial, whick could take years from now to complete.
My opinion is that macro issues will not have a significant negative affect on IDCC, but it is quite possible. I also believe that IDCC has a better than 50/50 chance of prevailing in front of Judge Luckern. If IDCC does prevail then they would have incredible leverage to get a superior deal with Nokia and future contract renegotiations. I think IDCC's long term strategic plan is to get the best deal they can without ever risking another Motorola type decision. So while losing to Nokia at the ITC is a risk, I think it is unlikely.
IMO, the risk/reward is greatly skewed to the positive at these levels. But there is risk.
Form 4s are a non-event
There were some minor math errors on the recent form 4s and these correct those errors.
Royalty bearing does not mean per unit
See the announcement of the LG license - Olddog posted it earlier today. It also said royalty bearing. Royalty bearing can be fixed fee, like LG, or per unit.
Frank
My interpretation of the 8K on the license
This is MY OPINION based on the 8K. It includes facts from the 8K, along with my assumptions and educated guesses. It is given for free and is worth somewhere between half and double that amount.
As clarified by Lastchoice (thanks for calling and posting), I believe that the contract calls for a total of $400 million to be paid covering all 2G and 3G sales through 12/31/2012. That will be the total amount received and the total revenue recorded for the 4 year period. The payments will be made in 4 installments of $100 million over 18 months. My guess is $100 million now (definitely in Q1 2009 per the 8K) and $100 million every 6 months through July 2010. The license is a fixed fee royalty bearing license, similar to LG, not a per unit royalty bearing license similar to the Japanese licensees. Samsung will have to negotiate a new license for post 2012 3G sales. The 2G license will be paid up (meaning no future 2G royalties) with this contract. The income will be recognized ratably over the life of the agreement on the financial statements, which means $25 million a quarter for 4 years.
IDCC got Samsung to agree to make the 2G portion of the settlement related to 2009 forward and forgave the past 2G usage. In this way they were able to make the entire award applicable to 2009 forward, eliminating the "one off" earnings bump that would distort 2009 earnings. Those "one off" payment are backed out from recurring revenues by analysts, resulting in them never being included in the earnings stream that is used to compute the PE ratio. This way the entire contract amount will be recorded in current and future periods as recurring revenues. This is a very good thing and a smart way to go, as multiples are applied to current and estimated future recurring earnings, but not to prior period revenues recorded in the current year. This structure will help the share price more than booking the lump sum for prior years’ 2G and smaller amounts as recurring revenues would. Samsung just cares about the total they are paying, as they have been required to accrue liabilities for IDCC license fees over the years, so they gave IDCC this structure and probably got a lower total. By forgiving the past 2G usage, IDCC can allocate a small portion of the award to 2G for 2009-10 and allocate the rest to Samsung’s 3G sales, making the 3G per unit rate higher. That will give IDCC a better rate to use in future negotiations if they are required to provide the Samsung contract to establish what the existing rate is with tier one companies.
Again, the above is my opinion based on the 8K below and I welcome any comments or critiques of my assumptions and analysis.
Item 8.01 Other Events.
On January 14, 2009, InterDigital, Inc.'s wholly-owned subsidiary InterDigital Communications, LLC and patent licensing subsidiaries (collectively, "InterDigital") entered into a patent license agreement (the "agreement") with Samsung Electronics Co., Ltd. ("Samsung") covering Samsung's affiliates, including Samsung Electronics America, Inc. The agreement supersedes the terms of the binding term sheet signed in November 2008 by such parties and provides for the termination of the 1996 patent license agreement between Samsung and one of InterDigital, Inc.'s patent licensing subsidiaries. Under the terms of the agreement, Samsung has agreed to pay InterDigital $400 million in four equal installments over an 18-month period to resolve the outstanding arbitration disputes involving Samsung's sale of 2G products, as well as the patent disputes over Samsung's sales of 3G products. Subject to the receipt of Samsung's first payment due first quarter 2009, the parties will move to end all litigation and arbitration proceedings ongoing between them.
Under the terms of the agreement, InterDigital has agreed to grant Samsung a royalty-bearing license covering Samsung's sale of 3G products (including products built under both the WCDMA and cdma2000 standards and certain of their related extensions) through 2012 and a license covering Samsung's sale of 2G single-mode TDMA-based products that will become paid-up in 2010.
InterDigital, Inc. anticipates recognizing revenue associated with the agreement ratably from January 14, 2009 through the expiration of the agreement on December 31, 2012.
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding current beliefs, plans and expectations as to the compliance by InterDigital and Samsung with respect to the agreement and the accounting treatment of the revenue associated with the agreement. Words such as "will," "anticipates" or similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including, but not limited to: (i) the failure of any party to observe the covenants under the agreement for any reason, (ii) the failure of Samsung to make any agreed upon payment in the time and manner specified in the agreement, and (iii) changes to generally accepted accounting principles and/or InterDigital, Inc.'s existing accounting policies. InterDigital, Inc. undertakes no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.
gman, Good post. I agree.
The important thing for the company is executing their business plan and gettting a good deal for the long term. I'm far more interested in the terms of the settlement than the exact timing. The deal may have been done last week and not announced yet, so IDCC hasn't even gone past the 45 days without even using "approximately". S happens and as long as everyone is on the same page a few days delay is not a big deal in the overall picture.
Revlis, regarding Janet and the 45 days
When I spoke to her my focus was on the "binding" part of the binding term sheet and the next step if Samsung reneged. I did not pin her down on 45 days vs. approximately 45 days. She did not disclose anything about the time frame beyond what was said in the PR.
One date that I am certain about is that IDCC can get a decision from the ITC on February 9. I don't expect it to go there and my guess is that there will be an announcement sometime between the closing bell today and the opening bell tomorrow, but I won't get nervous unless we get to next week with no word. This is IDCC, and we all know that company motto is "Mañana".
Frank
Amortization of technology licenses
It should be noted that the $30.6 million spent for technology licenses, was not expensed as the costs were incurred. These costs were accounted for as non-current assets and are being amortized over a period of five years.
Note that if IDCC were to dispose of the SlimChip it would write off the unamortized balance at that time.