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You misunderstand.
Again, FASB is in the process of expensing options early next year. I don't think you disagree with me that is a good thing because it will definitely change corporate behavior regarding compensation. That accounting rule change, however, will not happen overnight. In fact, the strenght of the opposition by the tech lobby suggest that this accounting rule will be phased in over time instead of happening right away.
Well, guess what will most likely happen when the option accounting rule change goes into effect? Gamesmanship. Companies will try to jam all their option grants BEFORE the rule change deadline. As sure as night follows day, many tech companies will be trying to improve their balance sheets before the deadline. Remember that before the new accounting rule goes into effect, the option grants STILL won't be considered as an expense item.
Again, the exercise of stock options results in a cash infusion, a tax deduction and stock dilution. Why would you want IDCC inhibit itself from such an effort when it also has the practical effect of improving its stock as currency for acquisitions?
Try to get a sense of proportion. A float 60-65M is simply not liquid enough to attract most mid-cap funds even if IDCC keeps on hitting its financial milestones so the ownership base of this stock will be limited to some mid-cap funds, many small-cap funds looking to lighten their exposure and many individuals, some of whom tend to fixate needlessly on the smallest details like insider selling and whatnot.
I understand your argument about long-term dilution. I don't think you understand the unique window of opportunity that is opening up for IDCC in the next year or two as a result of the accounting rule change. This is a one-time event so why be rigid about this opportunity?
P.S. Can a small company ever have too much cash? Keep in mind that IDCC's cash will balloon later this year or next year due to its prepayment strategy. They still have cash burn.
Some context, Ronny.
In the mid-90s, FASB was on the verge of expensing options until the tech lobby successfully waged a battle to prevent FASB from implementing the accounting rule change.
This major victory had the practical effect of actually encouraging most tech companies to go into the business of selling equity in addition to selling hardware or software or services!
As you understand more than I, the exercise of an option results in a cash infusion and a tax benefit on one hand and stock dilution on the other hand. The natural incentive created was to issue more and more options to generate more and more cash since there was zero impact on key profit metrics.
Consequently, up and until the peak of the Nasdaq market on March 2000, most tech companies were legally generating more cash from their options program than their main line of business and they were getting rewarded with higher stock prices! Since they didn't have to recognize options as compensation expenses they could show better profit margins. Since they could back up those rising profit margin trends with rising cash levels, they were rewarded with rising valuation multiples which allowed many to raise even more cash. Stock dilution was practically discounted or ignored. Would you believe, for example, that Cisco, which has $21B in cash/investments, has generated more cash from its options program than from its router and switch business during its entire corporate history?
Not surprisingly, many tech companies took varying approaches to exploiting this de facto social policy about how to access capital. Put another way, everyone was doing it and it would have been suicidal for a company on the ropes like IDCC was in 1996 not to do it. Its' cash balance, for example, would be much lower and its negotiating positions would unarguably have been much weaker.
Unfortunately, technology companies account for less than 10% of US GDP. More than 90% of US companies can never hope to grow as fast as technology companies. As a result, many companies that did not have the same access to capital as technology companies were pressured to monkey around with their numbers, resulting in the crisis of confidence that still plagues the market today.
Expensing options is one of the key reforms that FASB is expected to implement early next year. By finally recognizing the economic reality that options are part of compensation packages, it is expected that most companies will reexamine and readjust their compensation policies accordingly resulting in a change of corporate behavior over time.
Within that context, I don't understand why you are prematurely holding IDCC to an impossibly high standard regarding options when FASB is in still the process of option accounting reform that will affect everybody's future access to capital.
For example, with the potential dilution you cited meticulously, IDCC still has a tight float that still may not be liquid enough for most mid-cap funds.
IDCC is only now starting to come out of its turnaround phase. Why handcuff its ability improve its balance sheet using all legally available means?
From Eric L.:
Wireless YTD and Todays Performance
.....
.....
2003 12/31/99 .
YTD Forward Today AH
.....
.....
IDCC +50.1% -70.9% +0.60% -
ERICY +10.1% -54.8% -2.62% +
NASDAQ +9.1% -64.2% -0.61% 0
NOK +7.2% -65.2% -2.29% +
MOT -5.9% -83.4% -2.9% 0
QCOM -10.3% -81.5% -1.06% -
.....
.....
The BIG Winner is IDCC which is up 304%
since 12/31/2000. I do not hold IDCC
The $34M ERICY settlement is backend-loaded.
Settlement Infrastructure Recurring
...... Royalties**
......
......
1Q2003 - $ 1.5M -
2Q2003 $ 5.3M* 1.5M $2.5M-$3.1M
3Q2003 5.3M* 1.5M $2.5M-$3.1M
4Q2003 5.3M* 1.5M $2.5M-$3.1M
......
FY2003 $ 16.0M 6.0M $7.5M-$9.3M
......
......
1Q2004 18.0M $ 1.5M $ 2.5M-$3.1M
2Q2004 - 1.5M 2.5M-$3.1M
3Q2004 - 1.5M 2.5M-$3.1M
4Q2004 - 1.5M 2.5M-$3.1M
......
FY2004 $ 18.0M $ 6.0M $10.0M-$12.4M
......
....
...
*Assumes that the $16M projected inflow comes in
evenly over 3 quarters in 2003.
......
......
......
**Sony/Ericsson currently has 6%-7% of the handset
market. ERICY is contractually obligated to prepay
24 months of recurring royalties estimated at
$20M-$25M or approximately $2.5M to $3.1M per quarter
on an accrual basis. Again, this is based on 6%-7%
market share and does not account for seasonality.
Any market share gains by Sony/ERICY will probably
result in an acceleration of DEFERRED REVENUE
recognized.
We expect to receive aggregate payments currently estimated to be approximately $34 million from Ericsson and Sony Ericsson related to sales of terminal and infrastructure products through December 31, 2002. These payments should be received over four quarters, commencing in the second quarter 2003.
oys@sbcglobal.net
Thanks in advance.
Ronny,
Right now we have two ways to estimate IDCC's royalties from Nokia and Samsung.
1) Your 0.05% or less rate in royalty per handset (assumed ASP of $160), before prepayment discount of 20%.
2) My range of an artificially flat across the board $0.42-$0.63 in royalty per handset, net of prepayment discount.
TeeCee was gracious enough to add his own methodology. He assumes that IDCC's 2G deal with Nokia only covers approximately 70% of Samsung 2002 handset total since IDCC's deal with Nokia does not include 2G CDMA and 3G WCDMA (FDD).
He also assumes that IDCC's 2G deal with Samsung only covers approximately 40% of Samsung's 2002 handset total since IDCC's deal with Samsung also does not include 2G CDMA.
The end result is that he comes up with an estimate of approximately $0.75 in royalty per handset on 70% of Nokia's 2002 handset total and 40% of Samsung's 2002 handset totat.
The moving parts of his model, of course, are similar to ours:
1) Nokia had 36% of the 2002 global handset market which generally split along this line: ~85% GSM/TDMA and ~15% CDMA. Nokia had 45%-50% of the GSM/TDMA market but only 10% of the CDMA market.
Nokia has a fairly aggressive CDMA rollout this year that may increase its 2G market share from 10% to 15%-20%, but it also has an even more aggressive TDMA/GSM rollout paced by its phones with digital cameras. Nokia now expects to sell 45M-50M phones with digital cameras this year after selling only 2M-3M phones with digital cameras in 2002. Nokia's aggressive ramp is already creating spot shortages in the digital camera supply line so Nokia's 2G TDMA/GSM/CDMA 2003 product mix remains to be seen. As goes NOkia so goes IDCC's royalty exposure to 70%-80% of Nokia's handset share.
2) Samsung had 10% of the 2002 global handset market. It had approximately 30% of the 2G CDMA market and less than 10% of the 2G TDMA/GSM market.
2002 was the first year that Samsung's GSM business became just as large as its CDMA business. I think Samsung's GSM business will continue to grow faster than its CDMA business especially now that the South Korea market appears near saturation and the Indian and Chinese markets are taking longer to ramp. This means that there's a good chance that IDCC may increase its royalty exposure to Samsung's handset share from 40% to 50% in 2003.
I think we're all in the same ballpark and we should be able to refine these numbers further after the conference call.
P.S. Thanks, TeeCee. Check out Network Engines (NENG).
Motorola, Qualcomm Feel RF Micro's CDMA Chill
By Scott Moritz
Senior Writer
04/08/2003 01:37 PM EDT
The broad slowdown behind RF Micro's chilly forecast could leave a couple of wireless powerhouses shivering.
RF Micro, a manufacturer of power-supply chips, told Wall Street late Monday that order delays at the end of last month would punish profits while leaving sales mostly untouched. The result will be a 10 percentage-point contraction in gross margins and a bigger-than-expected loss.
RF Micro pointed to weakening sales to time division multiple access, or TDMA, and code division multiple access, or CDMA, customers. Analysts and investors quickly drew bearish conclusions about the near-term outlook for handset maker Motorola and CDMA chipmaker Qualcomm.
Meanwhile, Nokia -- king of a third way, the so-called global systems for mobile communications, or GSM, standard that dominates in Europe -- emerged as the perceived winner. It is widely believed that, as RF Micro's largest customer, Nokia probably had a major role in the chipmaker's margin problems. In other words, investors saw sufficient evidence that Nokia's dominance of the world's handset market continues.
"CDMA was the surprise," says Bear Stearns analyst Wojtek Uzdelewicz, who points to an array of factors now dragging on the fast-growing wireless technology standard.
On Tuesday afternoon, RF Micro dropped 57 cents, or 9%, to $5.48. Qualcomm shares fell $1.31, or 4%, to $32.88, and Motorola dropped a quarter, or 3%, to $8.27. Nokia slid 6 cents to $15.05.
Slowdown?
One of the broader takeaways from the RF Micro news is that Qualcomm's global CDMA expansion may not be as immediate as expected.
Among the woes for CDMA that Uzdelewicz highlights are: a potential drop in handset subsidies by Korean phone companies, slower-than-expected subscriber growth in China, and the delayed launch of India's CDMA network. (Uzdelewicz has a neutral rating on Qualcomm and Motorola and a buy on Nokia. Bear Stearns has done no underwriting for these companies in the past year.)
As RF Micro's largest CDMA customer -- accounting for some 80% of the company's CDMA sales -- Motorola struck many industry observers as the likely source for most of the CDMA weakness. Given widespread price pressure and the popularity of new camera phones from Samsung and Sanyo, industry observers say Motorola may be missing out on a fair share of the current handset upgrade cycle.
"There was a lot of hype around the ramp-up of business in China and India. The estimates were far too bullish," says a Wall Street hedge fund manager who is short Qualcomm and Motorola and long Nokia. "CDMA has had the biggest growth in the industry, but that caused a number of vendors to jump in and overproduce, flooding the market with their products."
http://www.thestreet.com/_tsclsii/tech/scottmoritz/10079014.html
Ouch! It's very, very expensive to fire people in Europe, but I think they have to keep on doing this. One thing in ERICY's favor is that they remain the dominant wireless network vendor with around 30% of the market.
Bux's basic problem is that he can't help himself. For some reason, he has to hold himself out as the lone voice of reason in a message board, which, if you understand his world view, is filled with a) stock manipulators and hypesters, and b) people who don't know how to think for themselves.
If you've followed the sociology of the IDCC message boards, there's a semblance to community that is worthwhile for many people so his pretentious attacks on people's integrity and intelligence naturally elicit violent responses.
What is fascinating to watch is that he keeps on doing this despite the fact that he often dwells in trivialities, his views are mediocre, at best, and often devoid of facts. Not even insights into the investing process. Most importantly, he has been wrong about the company's fundamentals which explains why he has been wrong abut the company's stock performance.
Spectacularly so.
Try looking at his RagingBull and SiliconInvestor posts in late 1999 to see what I mean. Once every year or so I like to engage him so I can trap him in his own syllogisms and induce the kind of emotional argumentation that you are witnessing now.
It's entertainment. That's all. LOL.
I don't think it's any coincidence that ERICY decided to settle with IDCC a day or two before new management took over. After getting tagged with willful infringement by Harris, ERICY's new guys simply couldn't afford to take that chance with IDCC.
More importantly, anybody who has watched ERICY restructure itself over the last 3 years can't help but notice that it has been trying to outsource as much of its operations as possible because their operating cost structure, particularly in Europe, is simply too high. I think that will continue under new management.
ERICY will continue to retain control over R&D and product development, but if you follow the logic of their restructuring moves, they also have to rely more on other companies to complement their R&D and product development.
That's a genuine opportunity for IDCC.
We're in the same ballpark, Ronny. My numbers are just more conservative and originally used in 1999 to keep some people's feet on the ground when people were just throwing around whole numbers and percentages as well as billions.
ASP $0.42 $0.63
....
....
$150 0.28% 0.42%
$200 0.21% 0.32%
$250 0.17% 0.25%
Nokia's indicated royalty rate is no more than .5%, before discounts for prepayments
Furthermore, your $0.42-$0.63 per handset is just an estimation of the royalties on a very small percentage of all handsets sold. It doesn't tell the whole picture and it certainly doesn't mean that someday IDCC will collect that much from every handset as so many claim
Really? That range is based on 52% of all handsets sold based on 2002 A-C-T-U-A-L numbers from Gartner and Herschel Shoesteck. How is that a very small percentage? LOL. See, Paul? What did I just say about this man's proven incompetence with numbers and proportion?
Since the rest of your post deteriorates to mere ramblings and more emotional arguments devoid of facts, I'm not going to even bother to respond.
He has been wrong so many times that he has to scrounge around for trivial arguments to win.
Try to push his buttons in such a way that he has to use numbers and proportion. I've been trying but he keeps on running away. LOL.
Who do you think you're fooling, Bux? LOL. As a matter of courtesy, I rarely present an opinion without backing it up with facts. That's why I have considerably more credibility than a zealot like you who dwells on trivialities and doesn't even know how to use facts to back up your trivialities.
Just as an example, IDCC's current royalty rate of $0.42-$0.63 per handset is close to the $0.25-$0.50 handset royalty rate that I started using in late 1999 when people like Mickey were talking about billions and people like you were talking about IDCC's bankruptcy. You were WRONG!
At that time also, practically all of IDCC's recurring revenue base came from the Nokia engineering contract. I correctly pointed out that the key empirical metric that would determine institutional interest in IDCC would be recurring royalty income. You were one of those who were skeptical that IDCC would even generate significant income from its 2G/2.5G patent portfolio. Well, guess what? IDCC's recurring royalty income per share has increased at least 5x from less than $0.25 in 1999 to more than $1.25 in 2002. Not surprisingly, institutional ownership in IDCC has increased to 30%-35% in early 2003 from less than 10%-15% in 1999. You were WRONG, again!
Want more? I was absolutely correct that all the hype about QCOM in 1999 was eventually going to result in a rotation of heavy momentum money from QCOM to IDCC to the superconductor stocks. That kind of sector rotation from the top tier to the second tier to the third tier was fairly common in the late 90s due to the market's abnormal liquidity, including the $50B that the Fed pumped into the system in late 1999 to counter any deviant Y2K behavior. It was really amusing to watch you keep on arguing futilely well into 2001 that IDCC's 1999 stellar stock performance was due to hype and manipulation when IDCC was merely riding on QCOM's coattails. LOL. The people like me who sold most of their stock in late 1999 and early 2000 understood this and never had any illusions about a stock with the weighty litigation risks of IDCC. Again, you were WRONG!
Now that the ERICY settlement has removed the weighty litiation risks, I am really amused that you keep on avoiding the fact that IDCC has already generated $400M in royalty income from its 2G patent portfolio during the last 7 years and that it is poised to generate at least $400M in royalty income during the next two years. Yet you keep on arguing that IDCC is just a patent house subsisting on nuisance settlements. What is really funny is that IDCC is already generating more royalty income per share than QCOM so, using your own tortured logic, if IDCC is a just a sleazy patent house, what does that make your beloved QCOM? LOL.
Face it Bux, you have been consistently wrong in terms of IDCC's fundamentals. That's why you have very consistently and very publicly WRONG in terms of its stock performance. What is really entertaining is that I can already tell that you're going to be wrong about 3G too after having been proven to be too optimistic about 3G in late 1999 when you kept on hyping that QCOM was going to collect a tax on every 3G handset as early as 2003/2004 and IDCC was going to get shut out.
Well, guess what, Buxie? 3G infrastructure spending was only $2.5B in 2002 and represented less than 9% of the depressed wireless infrastructure market. Unless you assume that 3G infrastructure spending will suddenly shoot up to 90% of the total market in the next 2 years then I can already tell that you're going to be wrong about the market adoption rate of 3G in 2006. A-G-A-I-N!!!!!
Lastly, if you were so spectacularly wrong about IDCC's ability to monetize its 2G patents then why should anybody believe your opinions about IDCC's 3G patents? Unlike IDCC's 2G patents which were challenged in court by Motorola and Ericsson, IDCC's patents have never been challenged.
Facts, my man, learn to use facts to back up your arguments so that you can salvage your credibility and reputation as a closed mind.
Good points. I think, however, we have seen how overheated expectations can obscure the genuine improvements in IDCC's financials. It would be unfortunate if IDCC's 3G progress suffers the same fate. Besides, I don't think we have a market that is willing to pay much of a premium for stories or futures. Right now, there is still considerable skepticism about the adoption rate of 3G outside Japan.
In 2000 the global wireless infrastructure market was around $50B while the global handset market was around $50B. In 2002 the global wireless infrastructure market was less than $27B while the global handset market was around $68B. The rule of thumb is that 80% of global telecom infrastructure spending is generated by the top 50 carriers so the collapse of the global wireless infrastructure market from $50B in 2000 to only $27B in 2002 indicates that the top 50 wireless carriers continue to push out their 3G deployments. If I recall correctly, 3G spending in 2002 was less than $2.5B.
The point is not to totally discount IDCC's potential 3G income stream but to highlight the financial milestones that IDCC is perfectly capable of achieving in 2G alone since those financial milestones will drive the continued expansion of IDCC's institutional ownership base.
Right now, IDCC's addressable institutional ownership base includes small-cap and mid-cap funds. As its financial metrics become more consistent, particularly the recurring royalty income line, it will attract more institutional interest, including the indexes and index funds.
Bux, Bux, you keep on denigrating IDCC but when confronted with the cold hard facts you run away like a scared pussycat.
From 1995 to 2002, IDCC generated nearly $400M in royalty income and ended 2002 with cash/investments of around $88M.
That's a cumulative total of $7.14 per share in royalty income from 1995 to 2002 resulting in $1.57 per share in cash/investments at the end of 2002.
By the end of 2003, it is highly possible that IDCC will end the year on track to generate $800M-$900M in royalty income from 1995 to 2005 with cash/investments of at least $400M.
That's a cumulative total of $14.29 to $16.07 per share in royalty income resulting in at least $7.14 per share in cash/investments by the end of 2003 or early 2004.
Notice something? Thanks to the ERICY settlement, IDCC is now poised to generate at least 2x the royalty income in the next 2 years than the last 7 years while increasing cash/investments by a factor of 4.5x!
Not even QCOM has generated the equivalent of $14.29 per share in royalty income so far. That's the equivalent of $11.4B in royalty income, by the way.
Shareholder value is best measured on a per share basis because each share represents a proportionate claim on the business and its cash flow. By that metric IDCC compares very, very favorably with the leading IPR holders like IBM and QCOM.
Most importantly, IDCC is still only a $1B company and the company and the stock certainly have more room to grow. And that must really eat away at you, gnawing away at your psyche, turning you into one of the most petty and intellectually dishonest characters I have ever met. How else does one explain the fact that after more than 4,500 posts on the subject, you have been consistently wrong on this stock?
LOL.
Here are some interesting numbers derived from the market share numbers:
1) IDCC estimates that Nokia owes $100M-$120M for 2002 handset royalties. Nokia sold 151M handsets in 2002 so that means that the IDCC estimate is based on approximately $0.66 to $0.79 in royalty per handset before any prepayment discounts.
2) IDCC also estimates that Samsung owes $22M-$27M for 2002 handset royalties. Samsung sold 41.7M handsets in 2002 so that means that the IDCC estimate is based on on approximately $0.53 to $0.65 in royalty per handset before any prepayment discounts.
3) While Samsung and Nokia can be expected to have similar royalties rates because of their respective MFL rights, keep in mind that Nokia's 36% market share is heavily skewed towards TDMA/GSM where it has 45%-50% of the global market compared to its CDMA market share of around 10%. As many here know, TDMA/GSM accounts for 80%-85% of the global market while CDMA accounts for 15%-20%.
Samsung's 10% market share is heavily skewed towards CDMA where it has 25%-30% of the CDMA market compared to less than 10% of the GSM market. Note, however, that 2002 was the first year that Samsung's GSM business became just as large as its CDMA business, clearly indicating that its GSM business is growing much faster than its CDMA business. Samsung's current market is also skewed towards the mid-range and high-end indicating higher ASPs than Nokia. For example, Samsung claims to have 45%-50% share of the US mid-range to high-end market in 2002.
4) Nokia, Samsung and Sony/Ericsson sold a combined 216M handsets in 2002 representing 52% of the total market. Going forward, I think it's fair to use a range of $0.53 to $0.79 in gross royalty per handset as an estimation tool. Net of assumed 20% prepayment discount, that would mean a range of $0.42 to $0.63 in net royalty per handset applied to approximately 52% of the total global market.
....
....
PROJECTED ROYALTIES from 2002-2007
Nokia, Samsung and Sony/Ericsson ONLY
(assumption: global market grows 5%/year)
....
YEAR 5% $0.42/handset $0.63/handset
....
2002 216M - -
2003 227M $ 95M $ 143M
2004 238M 100M 150M
2005 250M 105M 158M
2006 263M 110M 166M
2007 276M 116M 174M
....
PROJECTED ROYALTIES from 2002-2007
Nokia, Samsung and Sony/Ericsson ONLY
(assumption: global market grows 10%/year)
....
YEAR 10% $0.42/handset $0.63/handset
....
2002 216M - -
2003 238M $ 100M $ 150M
2004 261M 110M 164M
2005 287M 121M 181M
2006 316M 133M 199M
2007 347M 146M 219M
....
For a company with only 56M shares and an operating expense structure of $20M-$22M per quarter, these are heady numbers with plausible upside from the Japanese manufacturers like NEC, Sharp and Matsushita AND even after excluding Motorola and Siemens.
IDCC's current strategy of encouraging prepayments also means that it will be able to bank most of its future sales in DEFERRED REVENUES every 24 to 36 months, creating a fairly unique and high quality revenue stream.
GSM/TDMA will still be around by the end of the decade so it's possible that it will continue to generate royalties for IDCC on a declining basis from a very large base.
Okay, Once/Bux, we now have you on record that IDCC's downtrend started on March 26, 2003. LOL. A 4-freakin-day downtrend.
Talking about downtrend, do you realize that since the first trading day of 2000, QCOM has been on a relentless multi-year decline characterized by very heavy insider selling and, surprise, improving fundamentals.
Pop quiz hotshot: QCOM (market cap of $26B) has posted a negative stock return in 4 of the last 5 years. IDCC has (market cap of $1.1B) posted a negative stock return in only 1 of the last 5 years. Which company is on a major technical downtrend?
QCOM IDCC
...
..
.
1998 $ 12.95 - $ 4.56 -
1999 $176.12 (+1,360%) $ 75.00 (+1,545%)
2000 $ 82.19 (-53%) $ 5.41 (-93%)
2001 $ 50.50 (-39%) $ 9.70 (+79%)
2002 $ 36.39 (-28%) $ 14.56 (+50%)
1Q03 $ 36.00 (- 1%) $ 22.63 (+55%)
.
..
...
Note: Based on end of quarter/year prices.
By the way, IDCC tripled from $25 to $75 during the last week of the 1999 T-A-X season. Many of the IDCC shareholders like me who accumulated their stock in the $5-$10 range sold all or part of their holdings during that late 1999 run-up with many more selling during the first week of the 2000 T-A-X season when IDCC ended the week at $52.
And you're bragging about calling the decline of IDCC at $36.38 when the entire US stock market was in the process of collapsing? LOL. You were late as late can be.
You were wrong about QCOM and IDCC then and you are wrong about QCOM and IDCC now. How many times can you be wrong in your imaginary world?
LOL.
Under the terms of the 3/14/2003, Sony/ERICY are contractually obligated to prepay 24 months of royalties in 2Q2003 and 3Q2003. Some have estimated this amount to be around $20M-$25M based on Sony/ERICY's 6%-7% share of the handset market. All in all, IDCC will receive the following amount from Sony/ERICY this year:
PAID-UP ROYALTIES (thru 12/31/02) $34M
INFRASTRUCTURE ROYALTIES 6M
ADVANCE ROYALTIES (24 months) $20M-$25M
Total $60M-$65M
I. Handset Market Share by Manufacturer
A. Year to Year Market Share
...
1997 1998 1999 2000 2001 2002
...
Nokia 20.1% 24.3% 26.9% 30.6% 35.0% 35.8%
Motorola 28.8 23.2 16.9% 14.6% 14.8% 15.3%
Samsung 3.6 4.2 6.2% 5.0% 7.1% 9.8%
Siemens 2.5 3.3 4.6% 6.5% 7.4% 8.2%
SEricsson 16.2 14.4 10.5% 10.0% 6.7% 6.7%
Matsushita 5.7 8.1 5.5% 5.2% 4.1% ?
LGE moved into the 6th slot this year ?
Sources for above statistics: Herschel Shostek for 1997
and 1998 and Gartner Dataquest for 1999 through 2002.
...
..
.
II. Handset Unit Sales
A. 2002 Worldwide Mobile Terminal Sales to End-User Estimates
2002 2002 2001 2001 YOY
Sales Market Sales Market Growth
Company Units Share Units Share %
Nokia 151,421.800 35.8% 139,672.2 35.0% 8.4%
Motorola 64,640.100 15.3% 59,092.2 14.8% 9.4%
Samsung 41,684.400 9.8% 28,233.5 7.1% 47.6%
Siemens 34,618.000 8.2% 29,752.8 7.4% 16.4%
SonyEricsson 23,112.900 5.5% 26,955.9 6.7% -14.3%
Others 107,941.400 25.5% 115,876.6 29.0% -6.8%
Total 423,418.500 100.0% 399,583.2 100.0% 6.0%
Note: Ericsson sales only in 2001. Sony 2001 sales included in Others.
This table does not include iDEN sales to end-users.
...
Thanks to Eric L. from the Nokia board on SI and IHUB.
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=18708054
IDCC Financial Milestones
1) IDCC was a basket case after the 1995 Motorola debacle, period.
2) The IDCC turnaround started with the 1997 BCDMA deal with Samsung and Siemens. This 1997 Joint Venture proved to be productive enough to lead to the 1999 Nokia deal, which in turn, came a few months before the revalidation of IDCC's patents at the USPTO.
3) During the first year of the Nokia deal in 1999, IDCC derived more than 80% of sales from the Nokia engineering contract and less than 20% from recurring royalties.
4) At the end of 2002, more than 80% of IDCC's sales came from recurring royalties and less than 20% from the Nokia engineering contract. IDCC exited 2002 with a recurring royalty stream of at least $20M a quarter generated primarily from NEC and SHARP.
5) Thanks to the 3/14/2003 ERICY settlement and the way it settled the rates for Nokia and Samsung, IDCC's sales for 2003-2006 will now come in two ways:
A) Prepaid cash royalties from Nokia, Sony/Ericsson and Samsung will initially be booked as CASH/INVESTMENTS and DEFERRED REVENUES on the balance sheet and will be recognized quarterly on the income sheet depending on sales volume.
An acceleration of DEFERRED REVENUES RECOGNIZED is entirely possible. The faster the prepaid sales are used up, the faster IDCC will start receiving cash royalties. Color screens and digital cameras being pushed by Nokia, Sharp, Samsung and Sony/Ericsson figure to be the near-term catalyst for 2G/2.5G handset growth, particularly the handset replacement market which is now around 25%, i.e, one out of every 4 handsets sold is sold to existing customers. Outside of Japan, 3G appears to be further away than most people think.
B) Prepaid cash royalties from NEC, Sharp and other Japanese manufacturers (excluding those under litigation) will run out and they will start paying cash royalties on an ongoing quarterly basis.
Because of the relative market shares, the practical effect is still that IDCC's quarterly revenues going forward will have a more pronounced accrued portion (amount of DEFERRED REVENUES RECOGNIZED) than cash portion (amount of recurring royalties after pre-paid royalties run out).
However, the faster the prepaid royalties are paid up, the faster the cash royalties will come in. Generally speaking, a company whose cash flow is growing faster than accrual income is more attractive than a company whose accrual income is growing faster than cash flow. IDCC is going to be most unusual because a signficant portion of its cash flow from 2003-2006 will be prepaid so when its cash flow starts to grow faster than accrual income again, look out!
For example, IDCC posted $27M in revenue in 4Q2002. $19M came from the DEFERRED REVENUES account through the DEFERRED REVENUES RECOGNIZED acount in the cash flow statement. Approximately $8M came from CASH royalty payments and other sales.
For FY2002, approximately $55M of IDCC's $88M in revenues came from DEFERRED REVENUES and $33M came from ongoing CASH royalty payments and the extended Nokia engineering contract.
Notice how 63% of IDCC's 2002 annual revenue came from DEFERRED REVENUES powered by IDCC's 4Q2002 where DEFERRED REVENUES accounted for 70% of IDCC's quarterly revenue?
Now consider that IDCC will probably exit 2003 with a quarterly revenue rate of $45M-$50M, a quarterly operating expense rate of $20M-$22M, and a quarterly operating NET margin rate in the mid-50s. The quality of these numbers will be the highest possible because the money will already be in IDCC's bank!
From that 2G/2.5G base, what are the odds that IDCC will be able to grow sales consistently at the rare 10/10 rate (10% sales growth AND 10% operating margin growth) on its way to the exceedingly rare 20/20 rate (20% sales growth AND 20% operating margin growth)?
I would say that its chances are very good. Remember that IDCC is now exposed to 70% of the 2G/2.5G market and its recurring royalty stream is more sensitive to handsets than infrastructure. Any combination of market share shifts between Nokia, Samsung, Sony/Ericsson and the Japanese manufacturers can cause IDCC to accelerate the revenue recognition of prepaid sales AND/OR increase the amount of cash royalties that IDCC receives every quarter.
Notice something else? IDCC was in a stronger negotiating position in the 2003 Ericsson deal than it was in 1999 Nokia deal and it was in a stronger negotiating position in the 1999 Nokia deal than it was in the 1997 BCDMA deal with Samsung and Siemens. With the kind of 2G/2.5G numbers that we are talking about, there's a very good chance that IDCC will be in a stronger negotiating position in 3G.
Yes, I did. You're just too intellectually dishonest to admit it. LOL.
You're perfectly willing to ignore the disconnect between the insider selling in 2001 and 2002, and IDCC's stock performance so that you can focus on the insider selling in late 1999 when IDCC was riding the coattails of the QCOM hype job. What kind of syllogism is that? LOL. Have you forgotten that your original point was that insider selling almost always presages a decline in stock price?
Actually, you'd be better off using QCOM to support your dubious, I repeat, DUBIOUS premise about insider selling since QCOM insiders have sold billions of dollars of shares every year since it hit its all-time high in 1999. Since its 1999 peak, QCOM's stock has declined every tax year with no end in sight to the decline and the massive insider selling. Every year since 1999!!!
What is ironic is that the fact that QCOM's fundamentals have actually improved every tax year since then but that hasn't stopped the relentless decline in the stock or the massive insider selling.
What is hilarious is that you can't even use that argument because your pathetic agenda is to smear IDCC. What a loser!
LOL!
I think the reason most shareholders are upset when there is massive insider selling is because insider selling almost always has a positive correlation with declining share prices.
This is a dumb point. The research has consistently shown that insider selling is just too unreliable to be used as an indicator of future stock performance.
Compare and contrast, for example, the insider selling in IDCC before AND after the settlement. How do you explain that? Heck, go back even further. IDCC was the best performing wireless stock in 2001 and 2002 despite the fact that there was more insider selling than insider buying.
IDCC started 2001 with a stock price of $5.38 and ended 2001 with a stock price of $9.70. That's a gain of 80% despite the insider selling!
IDCC started 2002 with a stock price of $9.92 and ended 2002 with a stock price of $14.56. That's a gain of 47% despite the insider selling!
IDCC started 2003 with a stock price $15.70 and......
Notice something? I just demolished your premise with cold hard facts, again! Don't reply unless you can do the same.
LOL.
As I have said many times before, this stock is under-owned by institutions and over-owned by individual investors. Nothing illustrates this phenomenon better than this round of handwringing about insider sales by individuals who I think are still genuinely wrestling with their own expectations, unrealistic expectations really that are inducing all kinds of over-analysis. If the billion-dollar settlement expectations weren't bad enough, we now have to deal with unreal expectations about insider activity. LOL. IMO, when you keep on setting the bar too high for a turnaround company like IDCC, you're only setting yourself up for the predictable fall.
For some perspective, consider the following. Before the ERICY settlement, IDCC generated O-N-L-Y $400M in royalties and other income from their patent portfolio since the Motorola debacle in 1995. Most of that income stream went to funding R&D and IDCC ended up with only $100M in cash/investments before the ERICY settlement. After the ERICY settlement on 3/14/2003, IDCC is now poised to generate at least $200M a year in royalty income with a significant portion of the projected income from 2003-2006 ($370M-$450M) contractually structured to be liquified on IDCC's balance sheet by the end of the year. Put another way, that's a total of $800M-$1B over 12 years for a stock with only 56M shares, or something like $14-$18 per share!
And yet the handwringing continues about the sale of, oh , less than $5M in shares by insiders.
I only started following IDCC after the Nokia deal in early 1999. It would be really sad if many long-time individual holders, who have weathered the huge legal storms of the last 8 years, manage to psych themselves out of the meat of the move of this stock, which I and many other have pointed out repeatedly, will only come if IDCC continues to meet the financial milestones that will fuel the expansion of its institutional ownership base.
Great work, as always.
Do you see as I do that, on an accrual basis, IDCC has a very good chance of exiting 2003 with a recurring royalty income stream of $40M-$50M a quarter, total operating expense of less than $20M a quarter and cash/investments of at least $400M?
Get a clue. Sell-side research is still under legal siege. Buy-side research is more important for IDCC, particularly the buy-side research used by small-cap to mid-cap funds, but this distinction is probably way above your head or your pay grade.
LOL.
$34 million (plus ongoing royalties) is not a small number (read: few) for a small cap company.
There you go, Paul.
In terms of shareholder value creation, a one-time settlement of $34M for company which has only 56M shares outstanding is just as good as a one-time settlement of $488M for a company with 800M shares outstanding.
If IDCC ends the year with a recurring royalty income of $3-$4 per year ($168M-$224M) then that's just as good as QCOM ending the year with $2.4B to $3.2B in recurring royalty income per year.
If IDCC ends the year with $9 per share in cash/investments or around $400M-$500M that's just as good QCOM ending the year with $7.2B in cash/investments.
At the end of the day, common sense tells us that a company with a market cap of $1.1B has a better chance of doubling or tripling than a company with a market cap of $25B-$30B.
At the end of the day, common sense tells us that a company with less than 30% institutional ownership has the ONLY chance of doubling its institutional ownership base compared to a company which already has 60% institutional ownership.
LOL.
Thanks DWS, DAGRINCH.
Good post!
1) 2G/2.5G rate w/Ericson is sufficient to establish rate w/Nokia and Samsung, do not require another licensee.
People griping about the lack of a 3G rate do not seem to understand that 2G/2.5G still account for more than 90% of all handset revenues. Since the transition from 2G to 3G will take much longer than most people expect, 2G is actually the revenue story for IDCC over the next 2-3 years in terms of handset royalties! Nokia, for example, has a replacement cycle of 25%, i.e., 1 out of every 4 handsets it sells is a replacement sale. This number is expected to increase with the transition from monochrome displays to color displays in 2G and 3G.
One way to keep track of this transition is to watch the 3G infrastructure business since infrastructure spending precedes handset spending . Right now most of the 3G deployments have been pushed to 2004/2005. Wireless voice and data ARPUs (average revenue per unit) trends may even push that back by a year or two. For example, if wireless data ARPU cannibalizes wireless voice ARPU then that signficantly affects the payback of any 3G deployment since most carriers got carried away and assumed that wireless data ARPU would be incremental to wireless voice ARPU.
4) No news regarding Japan Patents. Sharp negotiation is ongoing and does not involve GSM and 3G agreement, hence JPO has no impact. Good relationship w/Sharp.
Sharp negotiations involve PHS and PDC ONLY! PHS and PDC are the TDMA variants that are sold only in Japan. Japan has the fastest ramp from 2G to 3G in the world so PHS/PDC related royalties are expected to decline rapidly during the next 18 months especially now that Docomo, the largest wireless carrier, appears to be recovering from its early missteps.
It's worth repeating that IDCC recently entered into a new licensing agreement Sharp covering GSM and 3G, and that Sharp used up $2.7M of the $11.1M advance royalty payment under this agreement. That contract is not, I repeat, NOT affected by the expiry of the original PHS/PDC contract.
It's amusing to watch the same people who were flat-out wrong about insider selling before the settlment now fixate on insider selling after the settlement run-up during a shooting war. While proven right this tax season after being so wrong so many times before, I think they will only end up losing more money down the road. Why?
The fact of the matter is insider selling has long been proven to be a very UNRELIABLE source of information about a stock's direction, before and after the change of SEC rules on insider selling in the mid-90s. The exception is the activity of insiders who have demonstrated a clear pattern -- pattern, not isolated instances or two -- of being ahead of any major price moves, but that is the proven exception, not the rule, and, in those cases, buy signals tend to be more reliable than sell signals in those exceptional cases. Not surprisingly, IDCC doesn't have any such insiders because of the legal uncertaintities that have weighed on this company for the last decade or so.
The important thing to remember is that IDCC is still under-owned by institutions and over-owned by individual investors. Expect the change of hands from individuals to institutions to continue.
Please email a copy of report to oys@sbcglobal.net. Thanks.
Come on, Mickey. I know that you are still suffering from the natural letdown of overheated billion-dollar expectations regarding the Ericsson settlement, but the ultimate value of a patent is determined by what at least two parties can agree on, not some so-called objective measures that are actually very subjective and misleading.
In this case, IDCC was less than 60 days away from the start of the trial of a 10-year case which, at the very least, indicates that there were very serious and very credible disagreements about the worth of IDCC's patents. Keep in mind that more than 97% of all patents do not, I repeat, DO NOT, produce any income at all.
For real-world perspective, consider that IBM, the long-time leader in IP royalties, has more than 30,000 patents but produce less than $1.75 per share in royalty income. QCOM has more than 3,000 patents and generates more than $1.50 per share in royalty income.
IDCC has more than 1,000 patents but, thanks to how this settlement triggered the Nokia and Samsung provisions, is now poised to generate more than $3.00 per share, I repeat, $3.00+ per share in annually recurring royalty income!!!!
How can anyone be unhappy with that kind of result, I do not understand. I just don't.
Relax, take several deep breaths and spend some money. When you come back, track the growth of DEFERRED REVENUES (balance sheet), DEFERRED REVENUES RECOGNIZED (cash flow) and CASH/INVESTMENTS (balance sheet) so you can understand the growing appeal of IDCC's new and improved operating model now that the legal cloud of uncertainty created by the ERICY litigation is gone.
This might be useful.
Using Fibonacci numbers, the key retracement points are 38.2%, 50.0% and 61.8%.
A retracement move of up to 38.2% from the most current high is considered a continuation of the current bullish trend.
A retracement move from 38.2% to 50.0% from the most current high represents genuine indecision.
A retracement move from 50.0% to 61.8% (the golden ratio) from the most current high indicates a change (bearish) from the current bullish trend.
Today's close of $14.80 represents a mere 24% retracement of the 52-week high of $19.50. I'd be more concerned if IDCC sinks to $12.05 or 38.2% off the most current high even though the current bullish trend would still be intact. To your credit, you did not allow yourself to be shaken out before the first retracement point despite the fact that you apparently came close to dipping below the average price of your shares. I'd thoroughly reevaluate my position if the stock sinks to the $9.75 to $12.05 range again or 38.2% to 50.0% off the most current 52-week high.
The KEY qualitative adjustment to be made with a story stock like IDCC, of course, is that much of the near-term catalysts for the stock are tied to patent litigation. And I submit that patent law is sufficiently complex and the value of good lawyering is sufficiently underappreciated that nobody really has a significant information edge over other market participants that will show up in the stock's trading pattern. This makes it difficult to read the daily trading behavior of this stock which, while certainly volatile, has actually outperformed all other wireless stocks in each of the last 2 years.
What is within our control is managing the genuine risks of this stock. Many people on this board, for example, have risk management technigues that have already generated good-sized returns in each of the last two years which make it easier to capitalize on the trading opportunities that will present itself in the remaining days before the proverbial eve of the trial.............and all the days thereafter.