Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
dclarke re my opinions on Apple you asked:
..."Ronny, do you think Interdigital will ever see any more money from Apple than the 2 million per quarter for 7 years? Also, why do you think Merritt would comment on re-set provisions in contracts"
I think the following two reposts will answer your two questions:
Posted by: rmarchma Date: Wednesday, August 05, 2009 6:58:47 PM
In reply to: gatticaa who wrote msg# 265156 Post # of 265612
gatticaa re Apple you said:
..."Ron, IMO it would be a stretch not to think that apple deal would NOT be tacked onto over time. We just don't really know so alotta IMO's from all of us. New big ipod soon, apple using MIH, iphone's a very big seller, laptops using 3G down the road perhaps are all reasons to think the apple deal might get adjusted midstream."
I tend to agree somewhat with your comments. It never has seemed quite logical to me either that Apple's license would remain completely fixed, with no adjustment whatsoever, over a 7-year period. Many thought that Apple's launch of the 3G iphone would trigger an adjustment to Apple's fixed royalty of $2.13m per quarter. Thus far that has not happened, based upon analyzing the fixed-fee revenues in the 10Qs. Is there something else that might trigger a "midstream" adjustment for Apple? Possibly, as I certainly can't rule that possibility out. However, until I see it show up in the quarterly financials or a reference to Apple's contract being something other than a fixed-fee license, I will not buy into an Apple "adjustment" though.
Posted by: rmarchma Date: Sunday, August 09, 2009 5:24:25 PM
In reply to: dndodd who wrote msg# 265641 Post # of 270006
David re Merritt's replies to TC in the CC
First let's put the entire conversation in it's proper context, which requires quoting more of this particular interchange between TC and Merritt than most have been quoting.
From the second quarter CC as follows:
..."Tom Carpenter - Hilliard Lyons
In the past couple of years, the model had shifted from per unit royalties to kind of ratable flat fee over a fixed time period given you guys and the other firm certainly. As you look out both this year and going forward not just 3G the LTE and maybe some new endeavors on your end. Do you think the nature of licensing deals is going to stay that way or is it going to be on a case by case basis?
Bill Merritt
I think it always will be case by case. I think that there was a level of stability in the market for a while that made fixed price deals maybe easier to do and I think not just the economic downturns, I think that's a short-term thing. But I think that the upside opportunities with respect to other wireless devices I think the shifting of the players in the market with Apple's emergence and are they going to take more share away from other folks and other things I think has created an environment where, I also want to say fixed price deals are -- you can't do, but I think you have to both sides have that things to a little harder how those deals will be structured depending upon how longer the period of time those are covering.
I think you can probably still do a short term in fixed price deal with good amount certainly and take it longer. Both sides may want to have some flexibility in that. So, again I think it is case by case and typically what has happened with us is the second and third tier have somewhat universally been running royalties, couple exceptions, but then I suspect that will be a case and the larger folks have always been fixed price and we may see that change.
Tom Carpenter - Hilliard Lyons
You guys have seen both sides of that or you have done some fix, you have had some folks drop off that either way through from a technology or sold or quit doing handsets then you had some other folks that have done fixed price that their market share has gone through the roof from initial projections?
Bill Merritt
Yes, I actually, I think the fixed price deals that we did very early in line with the company’s way. We are probably, as I think we are probably the only ones where we didn't, what were the upside that were the licensees sold lot more than we anticipated. For the most part, I think on the fixed price deals, we have either landed in the range that we modeled or we got the benefit of someone not doing it well in the market or exiting. So, on balance I think we have actually done pretty well with the fixed price deals, but going forward I do think that -- some of the factors that influence whether its fixed price or running royalties, I think they maybe leaning a little bit more corresponding royalty path.
Tom Carpenter - Hilliard Lyons
If you do fixed price, you think there might be, maybe every two years reset, if you don’t have a case and what would that through company out California that’s done extremely well, has a fixed price dealing, and you are going to walk into that for seven years?
Bill Merritt
There are definitely provisions you can put into the (inaudible) and both side can put in, that provide some market adjustments and I think -- again it depends upon the term of the deal. The sorter the term, the less you concern because there is not much that can happen. They usually have pretty good visibility for a year or two beyond that. Longer term, you can have reset provisions, or you can create hybrid models.
That could be a hybrid model where it’s partially fixed, partially variable, so that and thus in that situation you are protected to some degree, if the volumes take off because you at least have eight running royalty component but that licensee, because that running royalty component would be smaller because of the fixed component they get a benefit if they sell more. So, looking at things going forward is I think it may not be running versus fixed versus some hybrid of that."
My Note: If you read the entire context of this exchange, it appears to me that Merritt is basically dealing with licensing trends in the future, ie going forward and how they might be structured, ie reset adjustments and hybrid combination fixed-fee, per-unit licenses. However, I don't think he is saying that this is the way that the Apple license was actually structured.
Nessco re the $105m prepayment and the 8K you asked:
..."So why did they include the $105 million in the 8K when they didn't issue one for the $77 million?....Maybe the $105 million will affect revenues or they just wanted to reassure us that business is still going on as usual."
The $77m prepayment was not reported on an 8k, whereas the $105m prpayment was included in an 8K as an addendum to the Nokia ITC proceedings. However both the Nokia update and the $105m prepayment was included in Section 8 of the 8K, which is for nonrequired disclosures that a company thinks might be important information as follows:
"Section 8 -- Other Events
Item 8.01 Other Events (The registrant can use this Item to report events that are not specifically called for by Form 8-K, that the registrant considers to be of importance to security holders.)"
However if the $105m had a significant impact upon quarterly revenues, in would be required to be included in Section 1 of the 8K as a addition or amendment to an existing contract that has material financial impact. A Section 1 8K disclosure would have also required the identification of the company who prepaid as follows:
Section 1 - Registrant’s Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
(a) If the registrant has entered into a material definitive agreement not made in the ordinary course of business of the registrant, or into any amendment of such agreement that is material to the registrant, disclose the following information:
(1) the date on which the agreement was entered into or amended, the identity of the parties to the agreement or amendment and a brief description of any material relationship between the registrant or its affiliates and any of the parties, other than in respect of the material definitive agreement or amendment; and
(2) a brief description of the terms and conditions of the agreement or amendment that are material to the registrant.
(b) For purposes of this Item 1.01, a material definitive agreement means an agreement that provides for obligations that are material to and enforceable against the registrant, or rights that are material to the registrant and enforceable by the registrant against one or more other parties to the agreement, in each case whether or not subject to conditions.
http://www.sec.gov/about/forms/form8-k.pdf
Therefore, you answered your question when you added "they just wanted to reassure us that business is still going on as usual".
IDCC wanted to show its shareholders that the adverse Nokia preliminary ruling was not adversely impacting its existing licensees, as evidenced, by a large existing licensee prepaying $105m to IDCC after the ALJ ID ruling.
Mickey re the Prepayments and quarterly revenues you said:
...."rmarchma.....I been thinking, and have a question. Based on the new influx of cash, and trying to spread the accounting out for it through 2012 would projected earnings now be around 80 million a quarter?"
This post might be a little lengthy, but please read it all the way to the end. It appears that you think the new prepayments will increase quarterly revenues from the current $75m to $80m per quarter. However, prepayments in and of themselves do not increase quarterly royalty revenues, as I've tried to explain to you and to others previously as follows:
"The reason that no analyst has commented on this $77m prepayment, or why IDCC did not mention it in its Second Quarter earnings press release and CC, nor in a separate 8K, is because it will not increase IDCC's incremental quarterly revenues above what they normally would report. Instead of increasing earned royalties going forward, prepayments have the affect of decreasing earned royalties somewhat going forward for per-unit licensees. A prepayment entitles the licensee to a prepaid discount which reduces what the earned royalty would have been if the per-unit licensee was paying quarterly, instead of prepaying in advance.
First IDCC has two main types of licenses: per-unit and fixed-fee. (There can also be a combo per-unit and fixed-fee license, and at least one licensee has actually done that). A per-unit licensee has the choice of prepaying its anticipated future royalty obligations or making payment on a current basis each quarter with the quarterly sales report. If the licensee chooses to prepay in advance, then its per-unit royalty is essentially decreased by a a prepayment discount. I think that this discount can be upward to 20% if they prepay for something like a two-year period, based upon some of my previous calculations. Therefore, the licensee might pay significantly less per unit if they prepay, than if they paid quarterly. That's the advantage to the per-unit licensee of prepaying."
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=40349804
Let me try to explain the concept with some illustrative numbers and an illustrative licensee. Sharp did not prepay its royalties in 2008, but rather paid each quarter when they sent in their quarterly sales report to IDCC. Sharp's current royalty payments to IDCC in 2008 amounted to $36.6m, according to the 10K. For ease of calculation, let's say $36m or an average of $9m per quarter in 2008 (which has dropped off significantly thus far in 2009 btw).
Rather than paying its royalty each quarter, let's assume Sharp does a 3-year prepayment of $105m against its estimated future royalty obligations. Let's also assume for ease of calculation that they receive an 11% annual prepaid discount rate. Therefore, an average prediscounted quarterly royalty of $9m gets a $1m prepaid discount, and the net quarterly royalty becomes $8m. Therefore, Sharp's quarterly royalty revenue has decreased by $1m, which would cause a corresponding decrease in IDCC's current quarterly revenues from $75m to $74m.
Now I'm not trying to say that prepayments and prepaid discounts are bad. Some of the advantages to IDCC, from my earlier referenced previous post as follows:
"Now IDCC will receive cash upfront on prepayments. Cash in hand is always GOOD. Never underestimate cash. This upfront cash is IDCC's to keep, even if the licensee does not sale its anticipated units or quits manufacturing handsets, which has happened on several different occasions. Also IDCC can invest the cash and earn some type of return, such as interest. However, the current interest rates are nowhere near the prepaid discount rates IMO. Therefore, IDCC's ongoing quarterly revenues are reduced somewhat from what they could have been, had they offered no prepaid discounts and made each per-unit licensee pay on a current quarterly basis. However this can be offset somewhat, when IDCC gets to keep upfront monies and record any remaining upfront balances into quarterly earnings for those licensees who quit making handsets.
dclarke some excellent points re value of cash. You are correct that some of the excess prepaid cash can be and has been used for stock repurchases. Although stock repurchases do not increase the amount of the quarterly earnings, they do increase the earnings per share by reducing outstanding shares. That certainly needs to be factored into the equation. Also very good point about big cash balances allows IDCC to negotiate from a "position of greater strength", which could positively impact future earnings if it allows IDCC to obtain higher royalty rates on per-unit licenses or higher fixed-fee amounts."
(Another possible alternative use of the prepaid cash is to purchase some additional patents, or to buy a small patent company like IDCC did previously with Tantivy. Additional strategic patents should help in obtaining more licensees and additional royalties for IDCC).
Some additional comments associated with the $77m and the $105m prepayments:
(1) these are much larger than previous prepayments. Therefore, these two prepaying licensees really believe strongly in their future revenue streams. If these are Japanese licensees, then this would indicate that things have bottomed in Japan, and on the way up over the next couple of years. Since IDCC has several per-unit licensees in Japan including Sharp, NEC, Panasonic, Toshiba, etc. this bodes well for IDCC's future royalties.
(2) the $105m prepayent came in after the ALJ ID ruling of no infringement by Nokia. Therefore, the preliminary Nokia ruling is not having any possible negative impacts to this particular large licensee. Hopefully, the Nokia ruling will not have any negative impact on other existing IDCC licensees either.
(3) an estimated uncommitted available cash balance of a previously estimated $8.50 per share after these two prepayments on a currently priced $21 stock price is just unheard of. With this much cash per share and virtually no debt, IDCC has one of the most pristine Balance Sheets that you will ever run across. In difficult economic times, this is of critical importance.
Net re huge cash balance you asked:
..."Did you mean that with a huge cash amount, IDCC is attracted to the private equity firms for buying-out and privatizing IDCC (no-longer a public company). Any reasons?"
Yes that's what I meant. IDCC would be a very attractive candidate to a private equity firm to buy-out and take IDCC private. Cash balances and visable cash flows are especially attractive to private equity firms. IDCC has a huge cash balance per share relative to its share price, as well, as highly visable positive cash flows into the foreseeable future. Private equity firms typically look at the cash balances and cash inflows that they can get versus the cash outflow needed to acquire the stock and take the company private. Large cash balances and visable cash flows also make it easier to use debt and leverage to acquire the target company by the private equity firm. Private equity firms are much more concerned with "net cash" than they are with "net earnings", which is the primary focus of public companies.
Jimlur re IDCC's 3G licenses covering 4G you asked:
..."Marchma, Are you sure a multi-mode product would be covered under an existing contract?"
According to Bill Merritt, most of IDCC's per-unit 3G licenses would also cover 4G in multi-mode products. However if it's a fixed-fee license, IDCC has tried to exclude the multi-mode 3G/4G products from the existing 3G fixed-fee.
From IDCC's First Quarter 2009 CC as follows:
Tom Carpenter - Hilliard Lyons
Verizon's talking about a very aggressive rollout time lies for LTE 4G technology and Qualcomm license maybe about half measures, or LTE. You guys expect to have any licensing deals with the majors ahead of the Verizon rollout, or are you going to be after the technologies introduced?
William Merritt
Well, actually if you look at the license agreement today, they would cover LTE products maybe for examples, if it's a per-unit license, it gives me shock as an example, a shipped -- and LTE cables is the way, well that's also going to be capable on the 3G network, so, you're going to capture that product within the existing license agreement.
So, if the license here is in fact today cover LTE hasn't been an advertise part of the program because its 3G has been the focus. This from the portfolio standpoint we're in very good shape to go out and license LTE, again its one of those things we need to get people sort of focus on that and I think today its looks for the remains on 3G. And, I would expect over the next year, so that the discussions might they did at one point a certain mix between 2G and 3G discussions will become next between 3G and LTE.
Tom Carpenter - Hilliard Lyons
Are you saying that it's Sharp or another Samsung another license, do you think what's next possibly paid in their license that ship a multi-node 3G, 4G handset, you'd receive royalties also for the 4G component of the phone?
William Merritt
Yeah, if you go back in the specific license agreements, it's typically the way the license agreement has been structured, if that device is capable of operating on a 3G network, it doesn't matter that it can also operate on LTE network, it's still a reportable product under those deals. So that's true with respect, you tend to do that with respect your current unit deals, what you do on your fixed price deals, you've done a fixed price deals you try to exclude the LTE capable stock program, but the payment and typically see it on the fixed price deals that include the LTE component.
http://seekingalpha.com/article/136222-interdigital-q1-2009-earnings-call-transcript?page=-1
Olddog re 3G/4G infrastructure you said:
...."It is my understanding that while the service providers' networks will have to handle both 3G and 4G, the 4G (LTE) infrastructure equipment is basically new equipment that will be added to the existing 3G infrastructure. Therefore, it would not be covered by the existing PLA, and a new one would be required."
The above was a reply to my following comment:
...."When 4G is first introduced, it will have to be multi-mode with 3G. Hence the first couple of years of 4G in Japan, or anywhere for that matter, will need to be 3G/4G. If an existing licensee has a 3G license with IDCC, then it would automatically extend into any multi-mode 3G/4G product. IDCC has stated this in past CCs."
You could very well be correct about infrastructure. Since most infrastructure is base stations, I see the point that a base station might only be a 4G basestation and connected as an add-on into a network that includes 3G basestations. Thus a 3G infrastructure license would not necessarily apply to equipment that is single-mode 4G. However, if a basestation itself is a dual-mode 3G/4G basestation (and I don't know if any will be dual-mode), then it would be covered under an existing 3G infrastructure license IMO.
Handsets are a different story though. They will have to be multi-mode 3G/4G when a new network is being rolled out. Since the new infrastructure will usually take a couple of years to be completely rolled-out in a country, those handsets have to be able to work on both 3G and 4G networks during the transitioning process. Therefore, an existing 3G handset license would still apply to 3G/4G dual-mode handsets according to IDCC.
Patopinion re prepayments versus current royalty payments you asked:
..."Is there an advantage to doing a Prepayment versus a Current Royalty Payment for the per unit licensee? It seems that unless there is a price difference why would a company opt to do a Prepayment when they can hang onto their money longer and do a Current Royalty Payment."
Short answer: the prepayments will get a prepaid discount from IDCC, which is the advantage to the per-unit licensee who is prepaying.
Long answer: I think the following reposts will more thoroughly answer your question:
Posted by: rmarchma Date: Friday, August 07, 2009 5:46:26 PM
In reply to: amrwonderful who wrote msg# 265473 Post # of 269828
amrwonderful re per-unit and prepayments you said:
..."ronnie: while I understand your point, are you stating that it is always better to receive a per unit royalty, rather than an upfront pre-payment?.....also, are you stating that it is a guarantee that IDCC's income would be higher if they recieve a per unit royalty, rather than an up front pre-payment?"
First IDCC has two main types of licenses: per-unit and fixed-fee. (There can also be a combo per-unit and fixed-fee license, and at least one licensee has actually done that). A per-unit licensee has the choice of prepaying its anticipated future royalty obligations or making payment on a current basis each quarter with the quarterly sales report. If the licensee chooses to prepay in advance, then its per-unit royalty is essentially decreased by a a prepayment discount. I think that this discount can be upward to 20% if they prepay for something like a two-year period, based upon some of my previous calculations. Therefore, the licensee might pay significantly less per unit if they prepay, than if they paid quarterly. That's the advantage to the per-unit licensee of prepaying.
Now IDCC will receive cash upfront on prepayments. Cash in hand is always GOOD. Never underestimate cash. This upfront cash is IDCC's to keep, even if the licensee does not sale its anticipated units or quits manufacturing handsets, which has happened on several different occasions. Also IDCC can invest the cash and earn some type of return, such as interest. However, the current interest rates are nowhere near the prepaid discount rates IMO. Therefore, IDCC's ongoing quarterly revenues are reduced somewhat from what they could have been, had they offered no prepaid discounts and made each per-unit licensee pay on a current quarterly basis. However this can be offset somewhat, when IDCC gets to keep upfront monies and record any remaining upfront balances into quarterly earnings for those licensees who quit making handsets.
Posted by: rmarchma Date: Friday, August 07, 2009 6:40:29 PM
In reply to: dclarke who wrote msg# 265501 Post # of 269828
dclarke some excellent points re value of cash
You are correct that some of the excess prepaid cash can be and has been used for stock repurchases. Although stock repurchases do not increase the amount of the quarterly earnings, they do increase the earnings per share by reducing outstanding shares. That certainly needs to be factored into the equation. Also very good point about big cash balances allows IDCC to negotiate from a "position of greater strength", which could positively impact future earnings if it allows IDCC to obtain higher royalty rates on per-unit licenses or higher fixed-fee amounts.
enyaw re whether LG could be mystery prepayer you asked:
..."marchma: have you given any thought that the $77 and/or $105 million prepayment might have come from LG.....The $77 million could be a catchup as the "threshold" may have been met and an adjustment needed to be made"
I pretty much ruled-out LG from an earlier repost of mine as follows:
Posted by: rmarchma Date: Friday, August 07, 2009 9:20:40 AM
In reply to: magillagorilla who wrote msg# 265330 Post # of 269732
Magilla re $77m prepayment and possible identity thereof
First the $77m prepayment is very good news indeed. I don’t recall a prepayment of this magnitude before. One great thing about a prepaid amount is that IDCC gets to keep the money no matter what, even if the licensee quits making handsets. Now the discussion at hand is who is this existing licensee that prepaid the $77m? I’ve heard several names being tossed around as possibilities, such as, LG, Apple, Kyocera, Sharp, and NEC.
As to the possible identity of the licensee, first let’s return to the Second Quarter 10Q where the prepayment was disclosed as follows:
....”These receipts included the first of four installments of $100.0 million from Samsung under our January 2009 license agreement and $41.2 million under a new $77.0 million prepayment commitment from an existing licensee, with the remainder received early in third quarter 2009.”
First notice that IDCC uses the word “prepayment” in conjunction with this advance receipt. As I posted earlier based upon 10K definitions, IDCC uses the term prepayment only in conjunction with per-unit licensees and not with fixed-fee licensees. A prepaid royalty means that a per-unit licensee is paying its quarterly obligation for unit sales in advance, rather than each quarter, in order to obtain prepaid discounts. See my referenced post re 10K language re word prepaid as follows:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=40241683
Second note where this $77m prepayment is actually disclosed by IDCC, ie, in a 10Q and not in the quarterly earnings press release or an 8K. Had this prepaid amount represented a significant increase in IDCC’s incremental quarterly revenues above “normal” amounts going forward, then this should have been disclosed as a separate “material item” in an 8K or in the earnings press release and CC thereon. This is very important in identifying the possible licensee and in ruling out others, as I will elaborate on later in this post.
As to specific names being tossed around, let’s start with LG. I don’t think this prepaid amount can be from LG because:
(1) LG is a fixed-fee payer and not a per-unit licensee.
(2) Had this been additional revenues from LG on top of LG’s fixed amount of $13.25m per quarter, then this would significantly increase quarterly revenues from LG above the normal amount. Therefore, this would require a separate 8K disclosure as a material event/item IMO.
(3) Although LG has some type of “threshold” provision, which might lead to additional royalties, it certainly appears from Merrit’s comments in an earlier CC that LG will in all likelihood not pay additional royalty amounts, even if they do have a very large increase in market share during the 5 year fixed period. Remember this question was put to Merritt directly in the CC. As Olddog has provided from the LG contract, they might have to pay additional amounts if they acquired another handset or infrastructure manufacturer. Therefore, the infamous threshold provision might be referring to an amount from an acquired company that would trigger additional payments from LG, or to a combined total amount from LG and its acquired company.
Jimlur further elaboration on fixed-fee terminology
To further elaborate on the last paragraph of the referenced post where I said:
..."(Added Note: Jim I think where you may be getting confused is that fixed-fee licensees have to pay the fixed fee in advance of the period cover by the license. For example, Samsung had to pay its fixed fee of $400m in 18 months, but the license is for 4 years. Similarly all the other IDCC fixed-fee licensees had to do likewise, ie pay in all the fixed money before the licensed time period ended, usually before the fixed time period was halfway complete. However, these advance payments from fixed-fee licensees are not considered to be "prepayments" by IDCC. IDCC uses the term "Prepayments" only for its per-unit licensees)".
Per-unit licensees can either prepay or pay currently each quarter. Money received in advance on per-unit licenses are referred to as 'prepayments" by IDCC. Fixed-fee licensees have to pay IDCC in fixed installments. Money received in advance on fixed-fee licenses are thus referred to as either "installment" payments or "fixed" payments by IDCC. Notice the language used in the latest second quarter 10Q re cash receipts:
..."These receipts included the first of four installments of $100.0 million from Samsung under our January 2009 license agreement and $41.2 million under a new $77.0 million prepayment commitment from an existing licensee, with the remainder received early in third quarter 2009.”
Also notice the language in the 2008 10K re cash receipts:
..."The positive operating cash flow in 2008 arose principally from receipts of approximately $272.1 million related to 2G and 3G patent licensing agreements. These receipts included the final $95.0 million installment from LG under our 2006 patent license agreement, current royalty payments of $36.6 million from Sharp Corporation of Japan (“Sharp”) and $26.6 million from NEC Corporation of Japan (“NEC”) based on the royalty reports they submitted during the period. We received prepayments, fixed payments, and current royalties totaling $113.9 million from other licensees."
(Added Note: Both Sharp and NEC were Current Quarterly Royalty Payers in 2008 and not Prepayers of their per-unit royalty obligations. Therefore both could have opted for Prepayments in 2009 in order to get the prepayment discounts. BTW if the terminology "Current royalty payments" are used in conjunction with Sharp and NEC in the next 2009 10K, then we will know that the two new large prepayents did not come from them. However, if IDCC uses the word Prepayment in conjunction with Sharp and NEC in the next 10K, then we can assume that the two large prepayments came from them.)
Apple has been disclosed as a fixed-fee licensee. Apple was also disclosed as having a 7-year license. However, they are paying the fixed fee in three fixed installments of $20m each. Note the following language from the Third Quarter 2007 10Q, the quarter that Apple was licensed by IDCC and the only new licensee in 2007 btw, as follows:
...."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,"
Dclarke re possible licensees for the large prepayments you asked:
..."Ronny, what are the possible current licensees that you think could be attributed to the $105m prepayment? Assuming NEC/Sharp were the other two this summer..."
First I don't assume that the summer $77m prepayment was attributable to NEC AND Sharp, but rather to NEC OR Sharp. As to other per-unit existing licensees that could possibly owe this much prepaid royalty to IDCC, only HTC and RIMM seem remotely possible to me. Although the $77m came in two installments, it is clear from the 10Q language that it was from only one existing licensee as follows from the 10Q:
..."These receipts included the first of four installments of $100.0 million from Samsung under our January 2009 license agreement and $41.2 million under a new $77.0 million prepayment commitment from an existing licensee, with the remainder received early in third quarter 2009.”
(Notice the use of the singular word licensee in the 10Q, rather than the plural word licensees).
Jimlur re per-unit versus fixed-fee license terminology
The words "Prepayment" and "Current Royalty Payment" are attributable to per-unit licensees only. Both of these terms deal with royalty associated with "sales of covered products", which is per-unit royalties. Fixed-fee licenses do not consider actual product sales by the licensee, as the payment is fixed in amount no matter how many units are sold. Also "Prepayment" and "Current Royalty Payment" licensees have to submit quarterly sales reports to IDCC, whereas fixed-fee licensees do not. With these points in mind, now reread the referenced 10K material as follows:
"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 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 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."
(Added Note: Jim I think where you may be getting confused is that fixed-fee licensees have to pay the fixed fee in advance of the period cover by the license. For example, Samsung had to pay its fixed fee of $400m in 18 months, but the license is for 4 years. Similarly all the other IDCC fixed-fee licensees had to do likewise, ie pay in all the fixed money before the licensed time period ended, usually before the fixed time period was halfway complete. However, these advance payments from fixed-fee licensees are not considered to be "prepayments" by IDCC. IDCC uses the term "Prepayments" only for its per-unit licensees).
gejebr3 re licensing Japanese OEMs for 4G you asked:
..."does this mean we have licensed these (or any other major) companies to 4G? I was unaware of this if it's true. If not previously licensed to 4G, then wouldn't an 8k announcing the upgrade be required?"
When 4G is first introduced, it will have to be multi-mode with 3G. Hence the first couple of years of 4G in Japan, or anywhere for that matter, will need to be 3G/4G. If an existing licensee has a 3G license with IDCC, then it would automatically extend into any multi-mode 3G/4G product. IDCC has stated this in past CCs.
David I agree with your following cash calculations:
"$216.6 End June 30
$100.0 Samsung (Received early July per Scott)
$ 35.8 Second installment of $77 million (Received early July)
$105.0 Prepayment received
Total cash on hand $457.4 million"
However from that above $457m number, I would subtract the remainding amount left on the share buyback of $85m. That would give IDCC about $372m or about $8.50 per share in available uncommitted cash. This is a HUGE amount of available CASH, which could easily attract significant interest from private equity firms.
gejebr3 re prepayment questions you asked:
...."marchma (or others - dclarke?)- if these prepayments are due to Sharp and NEC, how do they compare to previous prepayments from these licensees? are they dramatically larger, smaller, or the same?"
Significantly larger than past prepayments.
...."and what kind of time-frame would you expect them to cover going forward?
At least 2 years, but most probably 3 years.
...."and how is this analysis consistent with a slowing/tailing off of Japanese markets?
The Japanese 3G market is mature at this stage, and bad economic times have caused a decrease in handset sales. However, Japan is expected to start ushering in 4G pretty soon, which will mean significant increases in infrastructure and handset sales. NEC pays IDCC royalties on both infrastructure and handsets.
The following partial repost might be helpful to you:
Sharp and NEC are IDCC's two largest per-unit licensees. A $77m amount from either of these two licensees could possibly represent a typical two-year prepayment. Sharp paid $44.5m and $36.7m of total royalties in 2007 and 2008 respectively, whereas NEC paid a total of $32.3m and $26.6m in 2007 and 2008. Even though these revenues are off somewhat in 2009, Japan is planning to roll out its 4G LTE network soon. This would mean a new round of handset royalties from NEC and Sharp, and also new infrastructure royalties from NEC.
Added Notes: NEC ‘s royalty did exceed Sharp’s royalty in some years, especially when the 3G infrastructure was being rolled out big-time in Japan. Also this $77m could represent more than 2 years of anticipated royalties from either Sharp or NEC. Further since a prepayment from an existing per-unit licensee, such as Sharp or NEC, does not really incrementally increase IDCC’s quarterly revenues above normal amounts going forward, it would not require a separate 8K disclosure.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=41073949
Sloan re when we might know you said:
..."Does this mean that we might not know until after the first .quarter....may, 2010"
Not necessarily. We might know or have a good clue as early as the upcoming quarter, ie by the Third Quarter 2009 earnings release date.
Dclarke ok now I understand, you said:
...."Ronny, suggested that the $105m came from NEC AND SHARP"
Sorry, I didn't mean to imply that the $105m was from both Sharp and NEC. I was guessing that the earlier $77m prepayment was from either NEC or Sharp, and that this $105m prepayment was either from Sharp or NEC. Therefore of the two different prepayments, I'm speculating that one came from NEC and the other came from Sharp.
Dclarke re NEC and Sharp paying on same day you asked:
...."Ronny, why would NEC and Sharp decide to pay on the same day?"
The $77m and the $105m are separate prepayments occurring on different dates. The $77m prepayment was collected in two installments, one of $41.2m before June 30 and the remaining $35.8m in early July. However, the $105m was a new prepayment that was evidently received on August 31.
Sloan re prepayment hitting 10% quarterly threshold you asked:
..."HTC????? Isn't this amount more than %10. At some point they will be forced to let us in on this secrete."
I think that the licensee who prepaid this $105m amount is probably going to be, if not already, a 10% or more contributor to IDCC's quarterly revenues. IF the $105m prepayment happens to represent a 3-year prepayment (or 12 quarters) then this would average $8.75m per quarter. (BTW the earlier $77m prepayment would represent average quarterly revenues of $6.4m per quarter, if it was a 3-year prepayment). IDCC's existing quarterly revenues are around $75m, of which 10% thereon would be $7.5m. So if a licensee exceeds a 10% threshold of approximately $7.5m, then they would require separate disclosure in the quarterly earnings report.
We know that fixed-fee licensees, Samsung and LG, will be over the 10% threshold. Since I suspect that the two new prepayments belong to per-unit licensees Sharp and NEC, I would think that they might also be 10% quarterly revenue contributors. If somebody new shows up as a 10% contributor, such as, HTC or RIMM, then I would say that the large prepayment came from them rather than Sharp/NEC. However, I personally think it is much more likely to be Sharp/NEC, rather than HTC/RIMM or any other existing licensees.
Jimlur re possible identity of the large prepayments you commented:
..."I just can't figure what existing licensee would owe that much".
My guess is that the earlier $77m prepayment in the second quarter 10Q, and this $105m prepayment are from NEC and Sharp. These are the only two existing per-unit licensees that I think could possibly owe these amount of monies. I think that the $77m and now the $105m might be 2 to 3 year prepayments from NEC and Sharp. (BTW Olddog found in the NEC license where they do have the right to prepay for 1, 2, or up to 3 years, and I would assume Sharp has a similar right).
From an earlier repost of mine:
Posted by: rmarchma Date: Friday, August 07, 2009 9:20:40 AM
In reply to: magillagorilla who wrote msg# 265330 Post # of 269732
Magilla re $77m prepayment and possible identity thereof
First the $77m prepayment is very good news indeed. I don’t recall a prepayment of this magnitude before. One great thing about a prepaid amount is that IDCC gets to keep the money no matter what, even if the licensee quits making handsets. Now the discussion at hand is who is this existing licensee that prepaid the $77m? I’ve heard several names being tossed around as possibilities, such as, LG, Apple, Kyocera, Sharp, and NEC.
As to the possible identity of the licensee, first let’s return to the Second Quarter 10Q where the prepayment was disclosed as follows:
....”These receipts included the first of four installments of $100.0 million from Samsung under our January 2009 license agreement and $41.2 million under a new $77.0 million prepayment commitment from an existing licensee, with the remainder received early in third quarter 2009.”
First notice that IDCC uses the word “prepayment” in conjunction with this advance receipt. As I posted earlier based upon 10K definitions, IDCC uses the term prepayment only in conjunction with per-unit licensees and not with fixed-fee licensees. A prepaid royalty means that a per-unit licensee is paying its quarterly obligation for unit sales in advance, rather than each quarter, in order to obtain prepaid discounts. See my referenced post re 10K language re word prepaid as follows:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=40241683
Second note where this $77m prepayment is actually disclosed by IDCC, ie, in a 10Q and not in the quarterly earnings press release or an 8K. Had this prepaid amount represented a significant increase in IDCC’s incremental quarterly revenues above “normal” amounts going forward, then this should have been disclosed as a separate “material item” in an 8K or in the earnings press release and CC thereon. This is very important in identifying the possible licensee and in ruling out others, as I will elaborate on later in this post.
As to specific names being tossed around, let’s start with LG. I don’t think this prepaid amount can be from LG because:
(1) LG is a fixed-fee payer and not a per-unit licensee.
(2) Had this been additional revenues from LG on top of LG’s fixed amount of $13.25m per quarter, then this would significantly increase quarterly revenues from LG above the normal amount. Therefore, this would require a separate 8K disclosure as a material event/item IMO.
(3) Although LG has some type of “threshold” provision, which might lead to additional royalties, it certainly appears from Merrit’s comments in an earlier CC that LG will in all likelihood not pay additional royalty amounts, even if they do have a very large increase in market share during the 5 year fixed period. Remember this question was put to Merritt directly in the CC. As Olddog has provided from the LG contract, they might have to pay additional amounts if they acquired another handset or infrastructure manufacturer. Therefore, the infamous threshold provision might be referring to an amount from an acquired company that would trigger additional payments from LG, or to a combined total amount from LG and its acquired company.
I had earlier opined that I didn’t think the $77m prepaid amount was from Apple either, pretty much for the same first two reasons as above in conjunction with LG. Apple is a fixed-fee licensee, and an additional $77m on top of its initial $60m, or $2.14m quarterly, would significantly increase quarterly revenues going forward and would require separate disclosure in a 8K.
Kyocera has also been mentioned as a possibility. Kyocera's fixed-fee license of $2.5m per quarter was set to expire on June 30, 2009. Kyocera did have the option to convert to a per-unit license, but after analyzing the second quarter’s fixed fee amount it is rather apparent to me that Kyocera remained a fixed fee licensee to the end of its contract. Since there was no mention of Kyocera having a paid-up license at the end of the license term, Kyocera needs to renew its license.
At this point, there has been no indication by IDCC of whether or not Kyocera has renewed its license or not. I would think a license renewal by Kyocera would require at least an 8K filing by IDCC. In the past, IDCC has separately disclosed license renewals. Therefore, I suspect Kyocera has not renewed yet. Also I doubt that the $77m is from Kyocera because it would significantly increase IDCC’s quarterly revenues going forward, since its revenue stream is set to expire unless renewed, which would also require an 8K filing.
My theory is that the $77m prepayment is from either Sharp or NEC. From an earlier post of mine:
Sharp and NEC are IDCC's two largest per-unit licensees. A $77m amount from either of these two licensees could possibly represent a typical two-year prepayment. Sharp paid $44.5m and $36.7m of total royalties in 2007 and 2008 respectively, whereas NEC paid a total of $32.3m and $26.6m in 2007 and 2008. Even though these revenues are off somewhat in 2009, Japan is planning to roll out its 4G LTE network soon. This would mean a new round of handset royalties from NEC and Sharp, and also new infrastructure royalties from NEC.
Added Notes: NEC ‘s royalty did exceed Sharp’s royalty in some years, especially when the 3G infrastructure was being rolled out big-time in Japan. Also this $77m could represent more than 2 years of anticipated royalties from either Sharp or NEC. Further since a prepayment from an existing per-unit licensee, such as Sharp or NEC, does not really incrementally increase IDCC’s quarterly revenues above normal amounts going forward, it would not require a separate 8K disclosure.
Jimlur doubtful that the $105m is Samsung
First the term "prepayment" as used by IDCC is associated with per-unit licenses and never with fixed-fee licenses. Also it doesn't fit the apparent fixed payment schedule set-out for Samsung.
From Tom Carpenter's latest report as follows:
..."We expect InterDigital’s $282 million cash position ($6 per share) to grow. The $282 million counts the first two of Samsung’s four $100 million payments, which IDCC received in 1Q09 and July 2009. We believe the two subsequent $100 million payments will be in early and mid-2010.
That agreed to my conclusions also in the following repost:
Posted by: rmarchma Date: Wednesday, July 29, 2009 7:09:30 PM
In reply to: dndodd who wrote msg# 264386 Post # of 269719
Samsung's royalty payment due dates from the 10K as follows:
...."On January 14, 2009, we entered into the 2009 Samsung Agreement with Samsung, superseding the binding term sheet signed in November 2008 by such parties. The 2009 Samsung Agreement terminated the 1996 Samsung Agreement. Under the terms of the 2009 Samsung Agreement, we granted Samsung a non-exclusive, worldwide, fixed fee royalty-bearing license covering the sale of single mode terminal units and infrastructure compliant 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 compliant with 3G Standards through 2012. 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 its first $100.0 million installment in first quarter 2009. Under the terms of the 2009 Samsung Agreement, the parties moved to end all litigation and arbitration proceedings ongoing between them."
Therefore, Samsung's payment schedule over an 18-month period beginning in January 2009 appears to be as follows:
1st $100m installment received January 2009
2nd $100m installment received July 2009
3rd $100m installment due January 2010
4th $100m installment due July 2010
garycoal re $53m settlement in Videlock's resume you quoted:
..."*the owner of a worldwide portfolio of wireless communications patents in a patent licensing arbitration against a Japanese telecommunications company, resulting in a favorable settlement following a six-day hearing; the settlement included a $53 million cash payment to our client for past-due royalties and a new license agreement covering new technology"
The wireless communication patent owner was none other than IDCC. This $53m cash settlement for past-due royalties was from the 2G arbitration with NEC, which they settled in 2002. NEC also signed a new 3G agreement with IDCC in that same settlement. Therefore, this "new" counsel Erik Videlock has done great work for IDCC in the past. From 2002 through 2008, the 2G/3G agreement with NEC has produced $255m in Revenues for IDCC.
Nice report from Carpenter. He's projecting EPS of 61 cents in the 3rd quarter and 69 cents for the 4th quarter. The additional preliminary earnings for the 4th quarter is attributable to a projected $2m increase in revenues over the 3rd quarter, and a $2m decrease in projected litigation expense in the 4th quarter from the expected 3rd quarter levels.
jeffree re IDCC writing put options you asked:
...."I would be interested in your opinion as to the value to a company, such as IDCC, in Writing Put options...in lieu of outright share buybacks..."
First I am not an options experts by any means, but I think you might mean selling put options, rather than "writing". I think companies can legally deal in options, but very few actually do. I am sure that if IDCC chose to deal in its own options, it would require special authorization from its Board of Directors.
Theoretically I like the idea of IDCC selling put options. That way they can receive the put price, which would be recorded as nonoperating income, similar to interest income. However, the rate of return would be much, much higher than the interest return on cash balances. If the lower put price subsequently occurs, then IDCC can repurchase its shares at a lesser price that what it would have cost earlier, assuming they sold out-of-the-money puts initially. However if they had puts in place and there is a subsequent significant drop in share price, as what just happened with the noninfringement verdict, then people would be questioning the put strategy. IDCC would have to pay more for the shares due to the put, then if they had just acquired the shares after the significant price decline without a put.
I don't know if this post makes much sense or not. You did ask for my opinion and I gave it, but this is definitely not my area of expertise. BTW I was hoping that someone else would give you an answer, but no one else did, so I felt obliged to try.
Ghors re put options. Thanks for taking the time to further explain put options. Much appreciated. Just one more question over something you said in the reply as follows:
..."If the appeal is denied and the stock drops below $20 on a loss of a NOK appeal, then I will have to look at the price and decide whether to buy in the put (probably at a loss if below $20) or let them sell me the shares at $20 or I can roll it out and hope for a recovery of the price."
Hypothetically, suppose the share price drops below $20 before December, due to something like the "loss of a NOK appeal". What might the put option price be, if the share price went to say $19 or even $18? As long as you could purchase the put option back for less than your initial $1.60, wouldn't you have made something on the put transactions? Wouldn't you only have a true loss if it costs more than $1.60 to purchase the put option, and you decided to do that rather than have the shares put to you at $20? However if you do decide to have the shares put to you and you pay $20 per share, then your net cost in the these shares would only be $18.40, correct?
Ghors re your put option strategy
Thanks for sharing, and congratulations for adequately protecting yourself against an adverse ALJ ID this month. Admittedly, I do not know that much about options. Therefore, my first question deals with general put strategy. First you said:
...."As of today, these Dec puts will expire worthless. If the stock dips and any of these puts are in the money in December, I will roll them out to March or June and probably pick up additional premium."
How do you "roll" options out further into the future. Do you buy the corresponding put that you initially sold first, and then sell different puts which are further out in the future? Didn't you lose money when you bought back in-the-money puts that you initially sold?
My next question deals with your specific put strategy re IDCC. You also said:
...."I sold December 17 1/2, 20 and 22 1/2 puts because I believe IDCC will stay above it's current price."
I take it that you generally do not like to take risks re legal decisions. However, isn't that somewhat risky to be selling December IDCC puts at the time that the final ITC ruling will be made, if the appeal review is granted? Don't you think IDCC's stock price might suffer another selling wave, if the final ITC ruling goes against IDCC? As of now, IDCC still has the possibility of getting a reversal and an import ban against Nokia.
However, I think that if IDCC loses on its reversal appeal with the ITC Commission, then the hope of a possible quick resolution with Nokia goes out the window. IDCC will probably then be looking at a long protracted legal battle against Nokia in the Delaware courts. Other unlicensed Tier 1 companies will likely be put on hold pending the resolution of Nokia, unless IDCC significantly lowers its asking royalty rate and makes them an offer they can't refuse. Of course, if IDCC and Nokia settle or if the ALJ ID is reversed, then you certainly have nothing to worry about with your December put sales.
Rox re timeline and procedures after ALJ ID
"Appeal to the full Commission
The ALJ’s final ID can be appealed to the full Commission provided a petition for review is filed within 10 days of the issuance of the ALJ’s final ID. The other parties may file responses to such a petition. Any issues not raised in a petition for review are deemed waived. The Commission’s decision on whether to grant a petition for review is due no later than 45 days after the issuance of the ID. The standard on review is whether the final ID contains a clearly erroneous finding of material fact, an erroneous legal conclusion, or affects Commission policy. The Commission can also vote to review an ALJ’s final ID, sua sponte.
If a petition for review is denied, the ALJ’s final ID is adopted and becomes the ITC’s final determination. If a petition for review is granted, the parties will typically be given a briefing schedule, a list of the specific issues that are under review, and one or more questions or topics that the Commission wishes to have addressed. Those portions of the ALJ’s ID that are not under review are deemed to be adopted and become part of the ITC’s final determination. At its discretion, the Commission can adopt, modify, or reverse the ALJ’s final ID. In rare instances, the Commission may put aside a finding of violation if such a determination would be contrary to the public interest.
Appeal of the Commission’s final determination
Final Commission determinations are appealable to the US Court of Appeals for the Federal Circuit (CAFC) as are district court determinations. The notice of appeal must be filed within 60 days of the final determination. The ITC’s factual findings are reviewed by the CAFC under a substantial evidence test rather than the clearly erroneous test applied to district court findings. Thus, Commission factual findings are given more deference that district court findings. Commission legal conclusions, however, are given no deference and are reviewed under the same de novo standard of review as are district court legal conclusions.
Post-decision Presidential review
If the ITC determines that a respondent has engaged in unfair trade practices, it will issue injunctive relief that becomes effective after the expiration of a 60 day Presidential review period. During this review period, the President can veto the ITC determination for policy reasons, however such vetos are extremely rare. The respondent may continue importation of the accused articles during the Presidential review period by posting a bond in an amount determined by the Commission based upon the findings and recommendations of the ALJ. The complainant may seek to obtain the bond proceeds if the President does not exercise his veto."
http://www.buildingipvalue.com/n_us/163_166.htm
Oso re ITC commissioners' votes required for reversal
Thanks for the info. Appears that a majority vote for reversal of 4 to 2 or better will be all that is needed. Much easier to get a majority vote than it is to get a unanimous vote. However, it appears that a tie vote of 3 to 3 would NOT get a reversal as follows:
.."The IG further recommended that the
Commission amend the rules to ‘‘clarify
a tie vote situation,’’ e.g., to provide that
a tie vote on the disposition of an ID
will have the effect of affirming the ID."
Mickey re 35 cents estimated Nokia rate primarily comes from Tom Carpenter. A few excerpts from Carpenter's analyst report dated July 29 (before the ALJ ruling):
"We believe Nokia and Qualcomm’s 3G and 4G settlement and InterDigital’s 3G agreement with Samsung provide a framework for InterDigital and Nokia to agree upon a 3G royalty rate.
There are many confidential terms in the Nokia/Qualcomm settlement, but it appears that the blended 3G royalty rate that Nokia is paying Qualcomm is approximately 2%, or a little over $4 per phone at today’s average selling price per 3G handset. We believe InterDigital will receive between $0.35 to $0.50 per phone from Nokia once the firms finalize a 3G agreement. Our forward estimates have always modeled $0.35 per 3G phone from Nokia. Although a modest rate, it would mean hundreds of millions of dollars of royalty revenue to InterDigital over a five-year period, which is a common
length of InterDigital licenses. The licenses then renew for another five years, and so on. Please see Exhibits I, II, and III for the impact of potential licensing agreements with Nokia, Samsung, and Sony Ericsson on IDCC’s financials.
InterDigital could generate over $500 million in new revenue from 3G licenses with Nokia and Sony Ericsson. If InterDigital licenses Nokia for its 3G patents, we believe the rate will be between $0.35 per handset and $0.50 per handset. This translates into a potential $360 million to $514 million revenue contribution for InterDigital for the years 2010-2014. A 3G license with Sony Ericsson (at $0.50 to $0.75 per handset), which has approximately 7% market share, could generate $200 million over five years, in our view. Given healthy dialogue (and no legal actions between the firms over the past five years), we believe InterDigital and Sony Ericsson will sign a 3G agreement soon after InterDigital and Nokia finalize an agreement.
Going forward, we believe the firm may segment its licensing (offering a license for a certain segment vs. the entire portfolio) if it adds patent families that are outside its core technology. We are in favor of this strategy, because licensing rates for InterDigital’s and Qualcomm’s patent portfolios appear to be declining as 3G technology matures. Our view is that 4G patents are more widely dispersed than 3G patents, which could lead to further erosion in royalty rates for 4G handsets. That said, if InterDigital can add to the $0.60 to $0.75 royalty that we estimate it averages for 3G handsets, it could mean significant incremental revenue if the firm adds another $0.10 to $0.25 per phone (one billion 3G handsets in 2012) or a similar amount if the firm expands its patents into related electronic devices (tens of millions or possibly hundreds of millions of devices)."
Votes needed by ITC commissioners to reverse ALJ ruling?
The ITC is composed of 6 commissioners. Does it take a unanimous vote of all 6 members to reverse the ALJ, or just a majority vote of 4? What happens if there is a tie vote of 3 for reversal and 3 against reversal?
dclarke agreed. Cash is the real lifeblood of a company and IDCC is cash-rich. Having such a high percentage of cash in relationship to market cap makes IDCC rather unique. Some reposts on the issue of prepayments and the importance of cash as follows:
Posted by: rmarchma Date: Friday, August 07, 2009 6:20:08 PM
In reply to: gatticaa who wrote msg# 265487 Post # of 268109
gatticaa re $77m prepayment being new business you said:
...."ron, IMO, if you lean to thinking it's just committed money that was due anyway, you'd be wrong, but of course i don't know for sure and i really appreciate how you lay your stuff out.....I think it says the 77 is on new business, new money."
There is a big difference between a prepaid amount from a new licensee, and a new prepaid amount from an existing licensee. If the prepaid amount is from a new per-unit licensee, then this would increase incremental quarterly earnings and an 8k would have to be filed due to a material financial impact. However, if a prepaid amount is received from an existing per-unit licensee, then this does not increase incremental quarterly earnings and an 8K does not have to be filed. There was no 8K fled by IDCC in conjunction with this $77m prepayemt, which means it does not have a material impact upon IDCC's incremental quarterly earnings. It is not new additional earnings IMO. I think we will know for sure when IDCC gives guidance for third quarter revenues.
Posted by: rmarchma Date: Friday, August 07, 2009 5:46:26 PM
In reply to: amrwonderful who wrote msg# 265473 Post # of 268109
amrwonderful re per-unit and prepayments you said:
..."ronnie: while I understand your point, are you stating that it is always better to receive a per unit royalty, rather than an upfront pre-payment?.....also, are you stating that it is a guarantee that IDCC's income would be higher if they recieve a per unit royalty, rather than an up front pre-payment?"
First IDCC has two main types of licenses: per-unit and fixed-fee. (There can also be a combo per-unit and fixed-fee license, and at least one licensee has actually done that). A per-unit licensee has the choice of prepaying its anticipated future royalty obligations or making payment on a current basis each quarter with the quarterly sales report. If the licensee chooses to prepay in advance, then its per-unit royalty is essentially decreased by a a prepayment discount. I think that this discount can be upward to 20% if they prepay for something like a two-year period, based upon some of my previous calculations. Therefore, the licensee might pay significantly less per unit if they prepay, than if they paid quarterly. That's the advantage to the per-unit licensee of prepaying.
Now IDCC will receive cash upfront on prepayments. Cash in hand is always GOOD. Never underestimate cash. This upfront cash is IDCC's to keep, even if the licensee does not sale its anticipated units or quits manufacturing handsets, which has happened on several different occasions. Also IDCC can invest the cash and earn some type of return, such as interest. However, the current interest rates are nowhere near the prepaid discount rates IMO. Therefore, IDCC's ongoing quarterly revenues are reduced somewhat from what they could have been, had they offered no prepaid discounts and made each per-unit licensee pay on a current quarterly basis. However this can be offset somewhat, when IDCC gets to keep upfront monies and record any remaining upfront balances into quarterly earnings for those licensees who quit making handsets.
Posted by: dclarke Date: Friday, August 07, 2009 6:20:22 PM
In reply to: rmarchma who wrote msg# 265497 Post # of 268109
Ronnie, I think your analysis is correct but you are being very conservative on your returns for the cash that the company get in prepayments. First of all you can't just compare the discount % for the prepayment to current interest rates because these are multi year deals. Secondly, the cash from LG etc has allowed the company to purchase shares that could be very valuable in the coming years. One would have to match those returns against the discount % as well. I am guessing that the return the company gets on its investments over the last 3 years in buybacks alone will easily beat the prepayment %. Lastly the cash on hand allowed the company to negotiate from a position of greater strength so the incremental future revenue gained by that greater position could be huge when compared to a company that getting paid quarter to quarter with little room for error, IMO.
DCLARKE
Posted by: rmarchma Date: Friday, August 07, 2009 6:40:29 PM
In reply to: dclarke who wrote msg# 265501 Post # of 268109
dclarke some excellent points re value of cash
You are correct that some of the excess prepaid cash can be and has been used for stock repurchases. Although stock repurchases do not increase the amount of the quarterly earnings, they do increase the earnings per share by reducing outstanding shares. That certainly needs to be factored into the equation. Also very good point about big cash balances allows IDCC to negotiate from a "position of greater strength", which could positively impact future earnings if it allows IDCC to obtain higher royalty rates on per-unit licenses or higher fixed-fee amounts.
Thoughts on IDCC's third quarter revenue guidance
IDCC guided Third Quarter 2009 Revenues to be between $73.5m to $75.5m. I’ve seen differing reports for the consensus analysts’ estimates for the third quarter ranging between $76.1m to $76.8m. This compares to IDCC’s actual Second Quarter Revenues of $74.9m.
I thought the analysts’ estimates were rather high considering that IDCC’s second quarter revenues included $2.3m associated with past sales from an audit and $2.5m of Kyocera fixed-fee quarterly revenue. However, Kyocera’s fixed-fee license expired at the end of the second quarter, and IDCC has given no indication that the Kyocera license has been renewed. I think had the Kyocera license been renewed, IDCC would be required to issue an 8K thereon.
If one were to subtract the nonrecurring past sales revenue of $2.3m and Kyocera’s expiring $2.5m, then IDCC’s adjusted second quarter revenues would be only $70.1m rather than $74.9m. Going from $70.1m to IDCC’s minimum guidance of $73.5m would be a 4.9% quarter-over-quarter increase, and going from $70.1m to $75.5m top guidance would be a 7.7% increase. However going from $70.1m to $76.1m analysts estimate would be an 8.6% increase, which is too much to expect in this economic environment.
I thought it was good that IDCC could guide Revenues to $73.5m to $75.5m considering all of this. Evidently IDCC’s per-unit licensees are picking up some momentum. I know that RIMM and HTC had nice sequential increases in the second quarter, which impacts IDCC’s third quarter revenues. Hopefully things picked up in Japan during the second quarter also, which would be more per-unit quarterly royalties from Sharp, NEC, Panasonic, and Toshiba.
Also this third quarter guidance of $73.5m to $75.5m, certainly indicates that the $77m prepayment disclosed in the second quarter 10Q did not incrementally increase the existing quarterly revenues. Therefore, the prepayment did not represent any “new” incremental royalty to IDCC as I previously opined and posted.
Sonic re Samsung estimated 3G royalty rate you said:
...."I really think the SAM money is allocated almost all to 3G which I believe from Ronnies calculation would put it at close to $1 per phone. I actually think we maybe surprised at how much IDCC maybe be asking NOK based on the SAM settlement and that is whats causing the delay".
If one were to allocate all of Samsung's $100m per year fixed royalty to 3G, then that would equate to $1 per 3G handset based upon Samsung's 2008 actual 3G handset sales. However if one tries to estimate Samsung's 3G sales for 2009 through 2012, and still assumes that all the Samsung fixed royalty is for 3G, then I get an estimated 80 cents per 3G handset in the following repost:
Posted by: rmarchma Date: Friday, January 16, 2009 10:12:09 AM
In reply to: JimLur who wrote msg# 245510 Post # of 268008
Jimlur re Samsung’s estimated 3G royalty rate per unit
You asked if I could try to estimate Samsung’s 3G royalty rate per unit to IDCC over the 2009 to 2012 license period based upon the data chart used in IDCC’s December 3, 2008 slide presentation. You also established some important parameters that you wanted me to follow, such as assuming a 17% 3G market share for Samsung and to start with $120m of the $400m total 2G/3G Samsung royalty applies to 2G and the remaining $280m applies to 3G. You then wanted me to scale up the $120m assumed 2G allocation in $10m increments until I got to $200m of the $400m being allocated to 2G. The details of my calculation as follows:
Based upon the data chart used in IDCC’s presentation, the total 2G/3G handset unit sales are increasing gradually from 1.2B in 2009 to a little over 1.3B in 2012. However the mix is shifting over the 4 year period much more toward 3G and away from 2G to a predicted 70% 3G mix by 2012. Although the graph is not calibrated in much detail, the 3G unit bars seem to indicate the following total projected/estimated 3G handset sales:
2009 = 550m 3G handsets
2010 = 675m 3G handsets
2011 = 800m 3G handsets
2012 = 900m 3G handsets
Total 2,925m 3G handsets
Taking 2.925m estimated 3G handset sales over 4 year period x 17% assumed 3G market share for Samsung = 497m estimated 3G handsets to be sold by Samsung. I rounded this number to an even 500m estimated 3G handsets for Samsung for the four year license period. Dividing Samsung’s total royalty of $400 by 500m 3G handsets = 80 cents per 3G handset, if all of the $400m royalty is assigned to 3G and nothing is allocated to 2G. However according to your parameters, you wanted me to present a sliding scale starting with $120m allocated to 2G and thus $280m allocated to 3G in $10m increments up to 200m allocated to 2G. Therefore, the estimated 3G royalty rate per unit would be as follows:
80 cents per unit if all $400m is allocated to 3G ($400m total royalty/500m 3G handsets)
56 cents per unit if $280m is allocated to 3G ($280m allocated to 3G /500m 3G handsets )
54 cents if $270m is allocated to 3G
52 cents if $260m is allocated to 3G
50 cents if $250m is allocated to 3G
48 cents at $240m
46 cents at $230m
44 cents at $220m
42 cents at $210m
40 cents per unit at $200m being allocated to 3G and $200m being allocated to 2G
Another critical assumption is market share. You asked that I use Samsung’s current total 2G/3G handset market share of 17%. However, from recent data furnished by Eric to you, this data indicates that Samsung’s current 3G market share is 20% for 2008 and projected to go to 21% in 2009. If one were to use a 3G market share of 20% in the above calculations, then Samsung’s total estimated 3G handset sales over the 4 year period would be 585m, rather than 500m with a 17% share. This would yield a 3G royalty rate per unit of 68 cents allocating all of $400m fixed royalty to 3G, and 34 cents per 3G handset using $200m of the 400m total as the 3G allocated amount. According to the Scattergood analyst report, they indicated that Samsung might be losing market share, so market share is very nebulous and ever changing, especially over a 4 year period.
BTW based upon the statistical data and projections furnished by Eric, Samsung is expected to sale 100m 3G units in 2008 (50m WCDMA and 50m CDMA2000) of a total estimated 3G unit sales of 503m in 2008. Now if one were to use only this 2008 data, then Samsung’s current royalty per 3G handset would be $1, if all the $100m of annual royalty were assigned to 3G. Therefore if Samsung’s 3G handset sales were to remain constant at 100m per year over the course of the next 4 years, and if all the $100m royalty per year applies to 3G, then one would continue to get an indicated 3G royalty rate of $1 per phone from Samsung. Still this is not anywhere near IDCC’s current quoted average 3G royalty rate of just under $2 per phone.
Whizzer your contributions to this board are greatly appreciated! Thanks for your continued extremely insightful input and analysis.
revlis very good point! EOM.
dclarke you won't find a post where I predicted anything as low as $5. I don't know where you got that number from, but certainly not from me. On July 7 when IDCC was trading at $23 per share, I did predict that a win against Nokia at the ITC could propel the stock price to $50, and that a loss might propel the stock price to the low teens (which was about $10 less than the current price at that particular point in time). I even stated in a post to you on the following day that I might have overestimated both the high side and the low side as follows:
Posted by: rmarchma Date: Wednesday, July 08, 2009 7:26:45 AM
In reply to: dclarke who wrote msg# 262173 Post # of 267685
dclarke re negative impact upon individual stockholder you said:
..."Jim - FWIW, I did have a ihub reader today question me if the stock would go to the low teens for an extended time with a loss at the ITC. This post has him taking a closer look at holding over this period."
If what I said yesterday were to cause this poster to sell some of his IDCC shares, I assure you that was never my intent. I have never advocated for anyone to ever sell any of their current IDCC holdings. Matter of fact, now is certainly not the time to sell. I think with a reasonable license with Nokia, IDCC's stock price should rocket, and that the odds very much favor that.
I was responding to a post by Revlis that I thought was rather ironic. Revlis said that Mickey was the most positive about IDCC's future, even mentioning the possibility of a $100 share price. However, Revlis thought that he was the next most optimistic at a $40 share price. That struck me as ironic, because my guess was for a share price of $50, if IDCC could get a license from Nokia similar in amounts to Samsung. That would make me, a current non-owner, the second most optimistic only behind Mickey according to revlis' post.
However, before people starting questioning me about why have I not bought shares yet, I also needed to indicate what I perceived to be the possible risk if Nokia were to win at the ITC. Perhaps I'm overly optimistic about what would happen to the share price following a decent Nokia license, and I'm overly negative about what would happen to the share price if Nokia were to win at the ITC. Perhaps a more consensus price expectation might be for the high 30's to low 40's with a decent Nokia license, and the very high teens at worst with a Nokia ITC win.
The point is that no one really knows what will happen to a stock's share price, and this was only my personal subjective feelings about what might happen. No one should base an investment decision on someone else's gut feelings over a matter that no one can possibly know the answer to anyway. I was not trying to spread fear, but only explain my personal investment dilemma with this stock. However, I will be much more careful and guarded about what I say in the future, especially if I think it might be construed in a negative way.
dclarke you are mistaken, I never predicted anything anywhere nearly that bad.
dclarke what $5 prediction??? EOM
Mickey no I don't jest. Something repeated as the truth over and over again incessantly, sometimes becomes the truth in the minds of many. That's why jimlur never wanted that type of overt hype, or any rumors, posted on this board. He always wanted to protect the "mom and pop" investors, as he calls them.
Mickey re Romuluss' posts you said:
..."Romuluss had no part of the decision made by the judge."
He didn't influence the Judge, but he might of influenced others and been a disservice to this board with his barrage of pure unadulterated pump posts, some of which are as follows:
Posted by: romuluss
Date: Tuesday, August 04, 2009 1:38:30 PM
In reply to: None Post # of 267438
PREDICTION
______________
For the record a deal will be signed IMO by Friday the 7th.
The main elements:
4 YEAR AGREEMENT- $430-460 miliion
THIS PUPPY IS GONNA MOVE BIG!!!
Posted by: romuluss
Date: Monday, August 03, 2009 9:34:58 PM
In reply to: None Post # of 267440
I LOVE THE SMELL OF NAPALM IN THE MORNING!!
I have been reading posts today and their seem to be some worry regarding the "OBVIOUS PATENT". Well let me throw some cold water on this whole conversation; lawyers I talk to seem to think that with a JUDJE of this caliber running the show, NOKIA'S chances with this argument is A PURE DESPERATION ATTEMPT that won't fly with JUDJE LUKEN. Folks , NOKIA will come to the table in the next few days and a win win statement will be issued IMO.
The action in this stock and option activity indicates that. The only question in my mind is HOW MUCH IDCC will recieve as compensation. This is the time to go for it if there ever was a time; play it anyway possible, the best bang for the buck is to buy these cheap calls 31, 32, 33 or any for that matter; because when the news comes $40 or $50 will come so fast that it will surprise most of you. Remember NO GUTS NO GLORY.
Posted by: romuluss
Date: Wednesday, August 05, 2009 1:55:34 PM
In reply to: None Post # of 267440
LET THERE BE NO DOUBT
After reading the postings today, I sense hesitation, Doubt and many opinions with negative slants. Well let me tell you we are gonna prevail against NOKIA and do not let anybody talk you out of your shares. I have been watching the trading Tick by Tick for the last week or so and I can tell SHARES ARE INDEED SCARCE. four hours into trading and the MARKET MAKER can only shake few hands.If there ever is a time to go for if; THIS IS IT FOLKS.Like I said before you don't have to buy the shares outright but at least you need to be positionned with SEP CALLS just in case the news pops in the next couple of days. After that many years of waiting It would be indeed a shame if you're not in. The RISK/REWARD HAS NEVER BEEN BETTER. Good luck to all.
Posted by: romuluss
Date: Friday, August 07, 2009 10:48:39 AM
In reply to: MJPLIFE11 who wrote msg# 265378
Post # of 267441
ROMULUSS SAYS BUY NOW AND I MEAN NOW
Posted by: romuluss
Date: Friday, August 07, 2009 12:04:14 PM
In reply to: None Post # of 267441
TO EVERYBODY
There might be an attempt this afternoon to shake you out of
your shares, be careful. DO NOT LET GO NO MATTER WHAT.Use any
pullback to the 31 level to add to your position.
Posted by: romuluss
Date: Thursday, August 13, 2009 11:58:21 AM
In reply to: None Post # of 267443
ARE YOU A BELIEVER?
A natural nervousness this morning, I guess people where expecting news this morning. Have no fear IDCC has the goods
and WE WILL PREVAIL.
quartz re noninfringement not necessarily meaning nonessential you said:
...."To say that Nokia did not infringe on a patent does not mean that it is not essential......For example, if the patent was developed under the TDD contract, it could valid and essential but Nokia does not infringe because they already have a license to use it."
Nokia in its press release interpreted the noninfringement ruling to also mean that IDCC's patents involved in the litigation were not essential. From the Nokia press release as follows:
...."The case, filed by InterDigital, alleged that Nokia infringed four patents that InterDigital asserts to be essential for the UMTS (3G) mobile standard. The judge found that there is no infringement of the four alleged patents and therefore, Nokia is not in violation of section 337 of the Tariff Act......The judge's Initial Determination, issued on August 14, 2009, is consistent with a previous judgment in the United Kingdom that found several InterDigital patents not to be essential to the UMTS mobile standard."
Nokia is not saying that the noninfringement ruling was due to some previous license rights with IDCC, but rather due to the litigated patents in the ITC case not being essential to the 3G standards.